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The Best Time to Nudge Your Employees to Save (Sarah Catherine Gutierrez Commentary)

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In my sister’s year as a Fulbright Scholar to the Philippines, her work sought to understand the best way to structure micro-savings programs among people without access to formal financial institutions.

Each night, she walked around her neighborhood with a representative of a savings cooperative to collect the equivalent of 5 cents from members. Before the money could be spent or saved in a precarious location, a small piece of the daily wage was collected. Participation exceeded expectations.

I believe we have a lot to learn from that simple act in the Philippines: People will save money if we can first make it easy and then ask them to save. With minimum wage hikes coming in 2019, the timing has never been better to offer this kind of gentle nudge to put saving for retirement at the top of the New Year’s resolutions list for our employees — at every income level, but especially those affected by the new law. But we need an army of volunteers willing to give that nudge.

And we need to do it quickly. Only two-thirds of baby boomers had anything saved for retirement by age 58. According to a Census Bureau survey, two-thirds of working millennials have nothing saved for retirement. A 2016 survey from the Federal Reserve Board found that 40 percent of Americans could not get their hands on $400 in an emergency.

We have pinned our hopes on technology as the solution for nudging people to save. But can technology really compel people? Does investment education — knowing the difference between stocks and bonds — make people save? Probably not. Humans are experiential and relational. Reading a column in the paper that encourages us to save is never as effective as a personal micro-ask.

Last month, Arkansans approved Issue 5, which will raise the minimum wage from $8.50 an hour to $12 an hour over a five-year period. The law will affect an estimated 300,000 households. Arkansas Children’s Hospital recently announced a significant minimum wage increase from $10.10 to $14 an hour, and other hospitals and health care institutions are likely to follow suit.

But our collective experience at all levels of pay tells us that those raises will likely be spent. The research is clear that, without intervention, the adaptive parts of our brains will urge us to spend what we make. To be clear, no one lives high on $15 an hour, but they still want and deserve to retire one day.

But what if we intervened at the exact time of the pay raise? What if every laborer, manufacturing employee, health care worker and clerical worker was personally asked in an individual setting to save a portion of that increase? We know that if the average young employee saved 10 percent of his or her salary, he could look forward to adequate retirement income. A raise from $10 to $12 is a 20 percent increase, so that employee could start saving 10 percent and still have additional money to spend.

Would people actually save more if they were asked directly? Our experience tells us that they would.

The easiest and most common way to save right now is a 401(k) plan. Using payroll deductions, retirement savings get shuttled into an outside savings account and the remainder goes to the employee’s checking account. Theoretically, this should work because it is as convenient as the micro-savings program in the Philippines. But participation still lags — both in numbers of employees who save and in the amount that participating employees set aside.

Why? It’s simple. Investment professionals typically come to a company a couple of times a year and give presentations to large groups of employees about investment options and asset allocation. This puts the cart before the horse. Without saving as a focus, investment education is theoretical. Saving decisions accumulate money; investment decisions grow it once it’s saved. Money must be deposited before it can grow.

We experimented with introducing micro-savings programs within several local retirement plans. Instead of presentations and meetings on investments, we met with every employee and asked them to save 10 percent of their income. Incredibly, most of the time they did just that. In all of the retirement plans, employee savings increased by more than 50 percent.

We know that a simple ask works. We know that one-on-one relational meetings work. And with this rare minimum wage increase about to materialize, we sense some urgency. Feel free to steer clear of religion and politics, but this holiday we give you permission to talk to your loved ones, your co-workers, your friends, your community about that other taboo subject: money. Urge them to resolve this New Year to call up their HR department and request that 10 percent of their pay go to savings.

They might just do it.

Sarah Catherine Gutierrez, the founder of Aptus Financial of Little Rock, has a master’s degree in public policy from Harvard University. Email her at SC@AptusFinancial.com.
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