Reflections on Emergency Savings Salon
By Haidee Cabusora
Director of Policy and Advocacy, The Financial Clinic
The Emergency Savings Salon’s focus on addressing the sudden, unexpected events that can destabilize working poor’s household budgets is welcome and urgent. It’s not surprising that The Financial Clinic’s financial coaching customers have difficulty coping with these events. These customers lie squarely within the liquid asset poor with an average income of $15,000 and 76 percent of them with zero savings.
The Salon’s tour of savings innovations, products and strategies opened up new possibilities from a practitioner’s viewpoint. My thoughts on how financial coaching and other support programs (collectively, “practitioners”) can tackle this can be divided into three buckets: preparing, managing and transitioning.
- Savings are not monolithic. Practitioners can do a better job of using clear and consistent language about emergency events (unanticipated vs. catastrophic) and savings (emergency and long-term goals). The more precise that we can be in the language we use, the customers can better understand the planning process.
- Organizations that complete budgets with customers may consider a two-direction process. In addition to the current common practice of tracking the household expenses over a week or month, practitioners should capture a historical emergency snapshot such as the last five unanticipated expenses of the previous year. A savings plan can start with these expenses as its foundation and ultimately incorporate the goal of covering three months of income.
- Despite the phrase, practitioners can help customers prepare for unanticipated expenses. If a customer needed a locksmith in the last year, encourage the customer now to call a few locksmiths and do the comparison shopping.
- Insurance options may be available. The Financial Clinic’s financial coaches are big fans of renter’s insurance and are surprised by how affordable but underused it is in low-income communities.
Managing the Emergency.
- Customers need basic strategies and talking points to cope with an emergency. Take a minute to plan for your call to the locksmith. Reduce your request to a single sentence that you can repeat several times if you are transferred on the phone to successive parties. Use previous comparison shopping to negotiate a lower price.
- Coping with emergencies is more than a dollar amount. Back up plans are key. An emergency may not require a repair, but instead an alternate babysitter.
Transitioning to Financial Security.
- Sometimes, practitioners forget that low-income customers overcome emergencies every day—they are some of the best, innovative and most flexible budgeters around. Whatever has worked for them in the past should be acknowledged as an accomplishment and something to build on.
- Practitioners can often think of savings as a check-the-box activity. As customers adopt new savings habits, practitioners should all make sure that savings vehicles keep up with these changes. A first-time saver might be attracted to savings bonds because they are easy to understand but should move onto a tax time matched program or a more aggressive growth savings vehicle (i.e. Roth IRA, 529) after a tax season or two.
As these innovations continue to be explored and refined, I hope that designers consider ways to help improve the capacity of practitioners to offer savings vehicles. Practitioners need help navigating the which, who and when of savings vehicles. A customer with no savings may be: (1) a first-time saver who needs to add a prepaid card with a linked savings feature with a small automatic transfer or (2) someone struggling with debt who could use the discussed debt management plan. Improved marketing targeting specific populations and online platforms will help many practitioners navigate the landscape.