Problem
Many workers lack short-term savings. According to the Pew Charitable Trusts, 60 percent of Americans experienced an unanticipated pay cut, trip to the hospital, spousal separation, major car or home repair, or other large expense in the past 12 months; and 44 percent of Americans said they could not come up with $400 to cover an emergency expense without borrowing or selling something. This short-term financial instability is a root cause for retirement account loans or leakage, and is putting Oregonians’ long-term financial health at risk.
Solution
My earlier work to establish OregonSaves created the first state-level automatic enrollment retirement plan, which is helping workers save for the long-term. To augment this capacity and help workers fund short-term emergencies, I'm proposing adding a short-term emergency savings “sidecar” account, funded with a participating worker's first $1,000 in contributions. Additional contributions greater than $1,000 would be automatically diverted into the target date fund default investment. Should the worker access the short-term sidecar account, new contributions would automatically replenish short-term savings before diverting to the long-term investment vehicle. This dual account method would allow workers to seamlessly meet both short- and long-term financial goals and reduce the pressure on Oregonians dealing with emergency expenses.
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