Why Suze Orman Says Employers Should Help Workers Build Emergency Savings

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KEY POINTS

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


It's time for companies to step up.

It's pretty common for employers -- at least larger ones -- to sponsor a 401(k) plan for retirement savings purposes. And while those plans are extremely helpful in allowing workers to build long-term savings, they aren't useful when a near-term need for money arises. That's because steep penalties apply for tapping a 401(k) plan prior to age 59½.

But because most employers don't have plans in place that help workers save for near-term expenses and emergencies, many people sorely lack emergency funds. And that means they put themselves at risk of racking up costly debt when unplanned bills strike.

In fact, as a general rule, it's a good idea to have enough money in savings to cover a minimum of three months' worth of living expenses. But many Americans don't have anywhere close to that amount saved, which means they're vulnerable to debt the moment an unplanned expense pops up.

In a recent Motley Fool podcast, financial guru Suze Orman said she thinks it's time for companies to step up and start helping workers boost their savings accounts. Here's why.

An easy thing for employers to do

Orman isn't suggesting that employers start opening savings accounts for employees left and right and pumping thousands upon thousands of dollars into them. Rather, she suggests they offer modest matching contributions to savings the same way they commonly do for 401(k) plans.

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

A world of benefit

Getting help in building emergency savings wouldn't just benefit workers -- it could also benefit the companies that employ them, Orman insists.

Employees who get a company match in their savings accounts are apt to appreciate that benefit. That could make them more loyal. And at a time when employee turnover is such a big problem, that's a nice perk.

Getting help with building emergency savings could also make workers less stressed. And when workers aren't fixating on money problems, they may instead be able to focus their energy on being more productive on the job.

A win-win

Clearly, employers have plenty to gain by helping workers build emergency savings. And so it pays for companies to consider putting programs into place to make that happen.

This isn't to say that employers should discourage 401(k) plan participation. It's important to build up a retirement nest egg through the years to avoid financial problems later in life.

But while a hefty 401(k) balance is an important thing to have, it's easy to argue that emergency savings are even more important, because that's money that could bail someone out at any point in time. And having companies step up could make a huge difference.

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