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Suze Orman says, ‘We’re heading downhill very fast,’ unless employers start providing this critical benefit to their workers

MarketWatch logo MarketWatch 12/6/2022 Andrew Keshner
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KEY WORDS

Americans trying to save some cash for unforeseen expenses are up against a lot — months of red-hot inflation, wages that don’t keep up, the sheer difficulty of delayed gratification in a time when people spend billions of dollars online in one day.

It’s hard to put money aside for a rainy day. Indeed, personal-finance guru Suze Orman has this to say about saving: “It takes an extraordinary human being, seriously, to say, ‘I’m taking this much money out of my paycheck and I’m going to put it in an emergency savings account and not touch it.'”

‘It takes an extraordinary human being, seriously, to say, ‘I’m taking this much money out of my paycheck and I’m going to put it in an emergency savings account and not touch it.’ — Suze Orman

She does not hold out much hope for people doing that, especially when there is so much pressure to keep up with the latest trends, and complete the holiday gift shopping. “It won’t happen, it has never happened and unless employers start to help employees do that, we’re heading, really, down hill very fast,” she said.

Regrettably, Americans’ lack of savings is not a new problem. Around two-thirds of Americans said they could use cash, savings, or a credit card paid off at the next statement to cover an unplanned $400 emergency expense, according to the Federal Reserve’s annual survey on financial wellness.

The findings were released in May, based on research done even earlier. The savings rate has not been helped by the end of pandemic-era government benefits. In September, the personal savings rate was 3.1%. A year earlier it was 7.9%, according to numbers from the U.S. Bureau of Economic Analysis.

Now for the good news from Orman, who as speaking Tuesday at a panel run by the Bipartisan Policy Center: If employers did help hook up employees with emergency savings accounts, Orman thinks many workers would take up the offer for easy access to an emergency savings account. And they’d also likely reserve the cash they are putting aside solely for unplanned expenses, she said.

Full disclosure on Orman’s view of the role employers can play for a worker’s rainy day fund. She is the co-founder of SecureSave, a fintech that companies use to set up emergency savings accounts for workers, so she has a vested interest in this issue. With her service, users nip a little off their paychecks every payday.

Emergency Savings Act, a bipartisan bill

Now, two senators are pushing a bill that would make it easier for workers to immediately deposit cash to an emergency savings accounts. In fact, the Emergency Savings Act, a bill introduced in May by Senator Cory Booker, a Democrat from New Jersey, and Senator Todd Young, a Republican from Indiana, would bring the idea of optional, automated savings to whole new stage.

Under the bill, employers offering a defined contribution plan, like a 401(k), have the choice to let workers put cash in an interest-bearing emergency savings account. The account would be capped at $2,500. Workers put in after-tax and can pull it out penalty-free at any time.

If an employee leaves, they can take the money as cash or roll it into a Roth IRA or Roth defined contribution plan at their next employer. Roth IRAs and the like are funded with after tax money, as opposed to traditional IRAs.

It’s not like those supporting the bill want to force workers open a personal savings account, said Young. “We stay away from mandates,” he said in Tuesday’s panel discussion.

Through automatic enrollment in retirement plans, employers can activate deferrals from wages that go into accounts unless the worker decides to make a different contribution, or none at all.

Congress is now in a lame-duck session before year’s end. There’s going to be a lot of angling for all sorts of laws and tax extensions. Young and Booker are hoping their bill can get in the mix — and if not now, then next year.

Booker acknowledges that a law potentially nudging workers into more savings is no “cure all” when it comes to Americans’ lack of savings. “There’s more work to do. But this is something that’s a no brainer.”

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