Why Suze Orman Says Employers Should Help Workers Build Emergency Savings


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It’s time for companies to rise.


Important points

  • Many workers struggle with financial stress.
  • Employers have the potential to get involved and help, which in turn could benefit them.
  • Adjusted emergency fund contributions could make employees feel more loyal and positive about their workplace.

It’s fairly common for employers — larger ones at least — to sponsor a 401(k) plan for retirement purposes. And while these plans are extremely helpful in helping workers build long-term savings, they’re not useful when a short-term cash need arises. That’s because there are steep penalties for tapping into a 401(k) plan before the age of 59½.

However, because most employers don’t have plans to help employees save for short-term expenses and emergencies, many people are sorely lacking in emergency funds. And that means they put themselves at risk of racking up costly debt when unplanned bills hit.

In fact, it’s generally a good idea to save enough money to cover at least three months’ living expenses. But many Americans don’t have anywhere near that amount saved, meaning they’re vulnerable to debt whenever an unplanned expense hits.

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In a recent Motley Fool podcast, finance guru Suze Orman said she thinks it’s time companies stepped up and helped workers fund their savings accounts. Here’s why.

A simple matter for employers

Orman isn’t suggesting that employers start opening savings accounts for employees left and right and pump in thousands upon thousands of dollars. Rather, she suggests that they offer modest matching contributions to savings, as they typically do for 401(k) plans.

For example, a company might offer to match $2,500 in emergency fund contributions provided an employee contributes that much of their own money in a given year. Orman insists such small sums are a drop in the bucket for some companies with large financial resources. But for low- and middle-income workers, they could make a big difference.

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A world of benefits

Orman emphasizes that not only would workers benefit from receiving help building emergency savings, but the companies that employ them could also benefit.

Employees who receive a company match in their savings accounts will appreciate this benefit. That might make her more loyal. And at a time when employee turnover is such a big issue, that’s a nice perk.

Getting help building emergency savings could also make workers less stressed. And when workers aren’t focused on money issues, they can instead focus their energies on being more productive at work.

A win-win situation

It’s clear that employers have much to gain by helping workers build emergency reserves. Therefore, it is worthwhile for companies to consider programs to achieve this.

This is not to say that employers should discourage participation in the 401(k) plan. It’s important to build up a nest egg for retirement over the years to avoid financial problems down the road.

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But while a hefty 401(k) balance is an important thing, it’s easy to argue that emergency savings are even more important, because it’s money that could save someone at any moment. And as companies move up, it could make a big difference.

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