Retirement industry professionals might soon see a significant shift toward emergency savings accounts as millions of workers struggle to make ends meet after the financial hits brought on by the COVID-19 pandemic.
This rings especially true for the Millennial workforce, which has now experienced three major market downturns—the dip in 2001, the Great Recession in 2008 and the downturn due to the coronavirus pandemic, says Kevin Boyles, vice president and business development director at Millennium Trust.
“For people under 40 years old, because of the scar tissue that will come from this event, emergency savings might become the most important thing savers are thinking about going forward,” he explains. “Once the dust settles, there’s going to be a shift in mindset, especially for Millennials.”
Similar to previous generations, the Millennial workforce—which includes those between 25 and 40 years old—is currently wedged between multiple financial concerns. Millennials are paying off ballooning student loan debt, covering the cost of children and handling other expenses such as a mortgage payment or rent. As layoffs and furloughs will continue over the coming months, and potentially into the next year, these workers are feeling the effects of scarce savings.
“The challenge for many of these workers is that their emergency savings accounts couldn’t even cover two months of living expenses, and certainly not many months or longer,” says Jason Dorsey, a global researcher with an emphasis on the Millennial and Generation Z workforces at the Center for Generational Kinetics (CGK). “What we’ve seen is that many Millennials have drained their emergency savings accounts, and if they have retirement funds, they’re figuring out how to tap into those.”
On top of emergency savings, Dorsey expects Millennials to place an emphasis on core workplace benefits—not the pet insurance and catered lunch perks typically associated with the younger workforce. “When people go through times of tremendous emotional, physical and financial stress, it becomes clear what’s actually important,” Dorsey says. “In the long term, benefits will be a decisive characteristic of the types of companies that Millennials will want to work for.”
As the global workforce moves past the pandemic, Boyles and Dorsey anticipate, Millennials will immediately pursue rebuilding their emergency savings account at an aggressive pace to ensure their finances won’t be depleted again.
“This outbreak has just shone a light on an existing problem: Too many people are already living paycheck to paycheck,” Brian Hamilton, vice president at Smart Dollar, previously told PLANSPONSOR. “American workers are up to their eyeballs in consumer debt. We’re spending more than we make. We have little to nothing saved, and we’re not putting money away for retirement. We will get through this, and when we do, everything must change.”
Hamilton said employer financial wellness programs should be covering the basics of what to do in an emergency and encouraging people to create an emergency savings fund. “Coronavirus is shedding a big light on how bad it was. Americans are not prepared to handle a financial emergency—let alone a pandemic.”
Dorsey says it’s important to note what financial wellness means for every participant in each generation, not just Millennials. The priorities of a Baby Boomer are different from those of a Generation X worker, which can radically contrast those of a Millennial or Gen Z employee.
Dorsey adds that the uniqueness of the current situation should also inform financial wellness programs going forward. “The truth is that nobody working right now has been through a situation like this before. We don’t want to just take a playbook that worked before and apply it blindly again,” he says.
“We need to take a step back and look at the uniqueness of the situation,” Dorsey states. “Look at the uniqueness of the people going through this, and how you can best serve them.”
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