Employees want a forced savings account from employers: Edelman Financial Engines

Ric Edelman, Founder of Edelman Financial Engines, joins Yahoo Finance’s Alexis Christoforous to discuss employees' optimism about financial future and tips to help employees feel more financially secure.

Video Transcript

ALEXIS CHRISTOFOROUS: Joining me now as part of our America Saves Week in partnership with the Bipartisan Policy Center is Ric Edelman, founder of Edelman Financial Engines. Good to see you, Ric. You know, I went through this survey. And I think there are some troubling numbers here. But I want to talk about one big takeaway I saw. 35% of the people you surveyed said their financial situation is worse than it was a year ago. So tell me who is optimistic there and why are they so optimistic about their financial future.

RIC EDELMAN: Yeah, you're right, that is a very scary number that a third of all adult Americans are unhappy. And what is really interesting, though, is when you ask the question, who's optimistic, it is those very people. The folks who are in a very dire set of circumstances are the most optimistic, particularly minorities. Both Blacks and Hispanics are the most optimistic about their future.

And we're trying to understand why they're so optimistic, and there are lots of reasons I think for this. One is the American spirit. You can't put us down, no matter how bleak our current circumstances. And boy, we've been through a lot the past year, and we still are. We are always confident that we're going to conquer and we're going to do well in the future. You can also argue that some folks are in situations that are so bad, it has to get better. And so, I think there's some legitimacy to that as well.

ALEXIS CHRISTOFOROUS: Yeah, the idea that there's no place to go but up, right? So I know that the savings rate during the pandemic has actually doubled. And that is a really good thing. And while we are seeing a lot of American workers taking the right steps, trying to save for a rainy day, trying to save for emergencies, there are still a lot more that can be done. Talk to us about some ways people can have that emergency savings, even when it's really, really hard to have anything left over at the end of the month.

RIC EDELMAN: Yeah, when you have so many folks who are living literally paycheck to paycheck, it's hard to save. It's not that these folks are lazy, and it's not that they are not knowledgeable. We all know these days the importance of saving for our future and the need to plan for college, for our kids and our own retirement. The challenge is, when you're living paycheck to paycheck, you just don't have that luxury.

And this is why the most common recommendation that the folks in our survey offered, 42% of them said that they want their employer to offer them an automatic savings account, meaning we've already got a 401(k) at work, and that's great, that's good for retirement. But I want something to help me with a rainy day fund.

So they want something that says, take a portion of my paycheck, set it aside in a savings account-- money I can tap into at any time that I want. They don't care about the tax benefits. They're not worried about a tax deduction or a tax deferral. They just want a forced savings account. Because if you never see it in your paycheck, you won't miss it when it's not there. And so it's a great way for employers to help their workers start to save.

ALEXIS CHRISTOFOROUS: Wow, it's really nice to see that people are actually itself trying to self-impose that, right? Trying to tell their employers please do this for me, help me save. Are there any other ways that employers can encourage their workers to save more?

RIC EDELMAN: Well, the best is to provide greater levels of financial education in the workplace. Many workers are struggling not just with retirement savings and their bills, they're struggling to understand how basic money works. How do you choose the right credit card? How do you select the right bank account? How do you buy a car without getting gouged? How do you sign contracts for renting an apartment? How do you buy life insurance?

These basic issues-- when people don't know exactly how to do this, they end up overpaying. And that hurts them because their bills get too high, and it reduces the amount left over for savings. So financial education in the workplace is a wonderful opportunity that employers can provide. It's a low cost benefit because it's just knowledge and information. It's not a product you're trying to sell. There's no accounting that you have to deal with. There's no management. It's just knowledge.

And employees are saying they trust their employers to provide that content for them, and it's a wonderful new way for employers to provide a great employee benefit at incredibly low cost to their workforce.

ALEXIS CHRISTOFOROUS: And I think that something that the pandemic has bore out and also that we see in the survey is that not all things are equal, right? We're seeing this recovery. Some are calling it a K-shaped recovery that's revealing inequities across gender, across race. Who is feeling most optimistic, men versus women? What are you seeing in terms of those kinds of trends?

RIC EDELMAN: White males are feeling the pain the least coming out of the pandemic. It is lower income workers are feeling it a lot. Black Americans, Hispanic Americans, and women are all feeling the pain more than males and more than whites and more than high income. And if you think about it, most of the folks in America who are high income tend to be white and male because of the inequities that have been bred into our society for a long time.

And so, we do need to address the fact that, as you noted, it is a K-shaped recovery. Those who were doing well before are doing even better. Those who were failing difficult are now having even more challenges. And so we need to recognize that we need to provide different types of solutions for different audiences within the workplace and within society in general, if we have any hope at all of resolving the income inequity and the wealth gap that is pervasive in American society.