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One Event Away from a Crisis

Industry Trends and Research

In response to the fact that a significant proportion of American households would be placed in financial crisis if they had an unexpected expense of even $400, the payroll deduction emergency savings account concept was born. 

To gauge the consumer appeal of a payroll deduction into such an account, AARP fielded a national survey of 2,603 adults ages 25-64 who were employed (but not self-employed), paid by direct deposit, and expect to remain with their current employer for at least one more year. I was fortunate enough to have collaborated with AARP on this project.

The findings confirmed that in fact, many households are living on a financial edge. Specifically, a quarter of respondents (23%) said it would be a “major crisis” and 55% said it would be “difficult” if they had to cover an unexpected expense equal to one month’s pay. Furthermore, many households are feeling stress over their financial situation, with 19% saying they are “very stressed” and an additional 42% saying they are “somewhat stressed.”

And by the way, if past experience is a guide, the chance that they may be hit with a large unexpected expense is quite high, as 6 in 10 respondents (62%) indicated that they have had to deal with a large unexpected expense in just the past year.

Given these data, it is not surprising that the overall response to the program was very positive. In the AARP survey, respondents were shown the following product description:

“To help you be prepared for emergencies or unexpected expenses, an amount of money you specify will be deducted from each of your paychecks and deposited into a special savings account set up for you at a bank or other financial institution. These transfers from your paychecks to the savings account will continue for as long as you would like and you can stop them at any time. You are free to take the money out of the savings account at any time without paying a penalty. There are no fees on this account. At no time is your account information shared with a third party.”

Three quarters (76%) of the respondents found the program attractive (either very or somewhat). Furthermore, 71% said they would be very or somewhat likely to enroll in the program. Of course, actual enrollment would depend on many factors such as the final product design and the way in which it is communicated and promoted. Nonetheless, the survey reveals a largely positive reaction to this program. 

Among those who said that they would be likely to enroll in the program, the most common explanations given were related to the sense that it would help them save money, that it would reduce the financial stress of unexpected expenses, that they wouldn’t have to see or handle the money, and that it would be automatic and easy to set up.

What Drives Likelihood of Adoption?

Perhaps one of the most interesting findings is that psychographic and behavioral factors (67%) as opposed to demographic factors (33%) primarily drive likelihood of adoption. Specifically, high financial stress level, low non-retirement account savings balances, low trust in the employer, and low confidence in the ability to cover a large expense equal to one month’s pay were significantly and strongly correlated with likelihood of adoption. 

Click here to read more commentary by Warren Cormier. 

Demographic factors were very weakly correlated with likelihood of adoption. This is consistent with our other studies that have shown that financial wellness is not only experienced by high-income people, and conversely, financial struggle is not only suffered by low-income people. Rather, financial wellness is a matter of psychographics and behavior.

Importantly, the features of an emergency savings account that would maximize its attractiveness follow some familiar behavioral concepts and dynamics. The capability to make withdrawals from the account immediately (i.e., access), to change or end contributions at any time (i.e., control and reversibility), the ability to keep the account when leaving one’s employer (i.e. portability), and the employer not having balance or withdrawal history on the account (i.e., privacy) create the highest perceived value. 

Similarly, the positioning messages that make employees most interested in using the account are related to control, peace of mind and ease of saving. 


As in any product development project, a positive consumer response as measured through a survey is encouraging but there is a great deal of work ahead. Finalizing the product details, creating a communications strategy and having the right amount of promotional effort will largely determine adoption rates. Nonetheless, the findings confirm that many households are one event away from financial crisis and that the emergency savings account concept can reduce the stress of financial uncertainty or vulnerability. Given that one of the primary stated goals of financial wellness programs is to reduce financial stress, it may make sense to consider adding an emergency savings account to any financial wellness program. Clearly, an emergency savings account is a solid, tangible step in that direction. It is also an important step toward reducing leakage.

Warren Cormier is the Executive Director of the DCIIA Retirement Research Center and President and CEO of Boston Research Technologies. He is the author of the DCP suite of satisfaction and loyalty studies, and cofounded the Rand Behavioral Finance Forum with Dr. Shlomo Bernartzi. This column originally appeared in the Spring issue of NAPA Net the Magazine.