YES WE DID! Save, that is

Members of “Generation Net” aka the “Millenials” are commonly characterized as having technological prowess, needing instant gratification and consumption, requiring frequent praise and recognition, and offering a weaker work ethic than any preceding generation. And so when skeptics predicted that young adults would not engage, mobilize and vote in the 2008 presidential election based on their low turnout in 2000 and 2004, their record turnout impressed. Analysts tallying record debt levels carried by today’s young adults were again surprised by a new survey reporting an increase in this population’s personal savings.

A USA TODAY/Gallup Poll showed that since the economic downturn, 18-29 year olds report saving at a greater percentage than the general adult population. The accompanying USA Today piece illustrated the varied ways in which Americans particularly younger ones are stocking away funds and tightening their belts. That’s right, you didn’t misread that last sentence, the Millennials are increasing their savings and in fact they are saving at a higher rate than any other age group (take that Greatest Generation). From packing a lunch to preparing for the “unknown,” the anecdotes describe small changes in habits that may not necessarily lead to permanent behavior or culture change. However, some nudging from smart policy carried out by employers and financial institutions may lead to a sustained savings movement and eventual cultural shift- in which it’s hip to be thrift.

As policymakers contemplate strategies to stem job layoffs, home foreclosures, and constricting credit, special thought should be given to policies that will enable individuals, especially at lower and moderate income levels, to develop their own unrestricted savings accounts. Encouraging the building of the personal safety net should be top priority for policymakers as constituents demonstrate both a need and an ability to save.

It is not always a Wonderful Life and the unexpected happens.

Every household, of every income level, will experience at least one unplanned financial expense during the year. This could be an emergency household or car repair, an uncovered medical expense, or an unpaid vacation or work day. Analysis of Consumer Federation of America surveys suggests that households in the lowest and second income quintiles incur approximately $2,000 in emergency expenses annually. Compared to 2000, when nearly 40 percent of families held three months worth of income in financial wealth resources, only 29 percent were financially prepared for an unspecified emergency expense in 2007.

The extent to which the household will weather financial shock without having to forego a basic necessity (e.g., food, shelter, clothing, medicine), take on high cost or unsafe credit, or borrow from family and personal network, hinges on their level of liquidity. Even at a low interest rate, or a negative real interest rate, setting aside funds in anticipation of an emergency is for most people a better choice than pursuing high-priced credit or a short-term loan in the event of an unplanned expense. Yet the accumulation of those rainy-day funds is a rare event. So how can we help the “hip to be thrift” movement gain some traction? Since accessible, non-restricted funds are often the only lifeline to financial stability in times of income fluctuation and economic volatility, policy should apply the most promising behavioral economics research that calls for the use of defaults to overcome emotional and psychological barriers that stymie reaching non-retirement savings goals.

Employers can play a helpful role facilitating the automatic contributions to an individually-owned savings account for short-term, unplanned expenses and constructing the plan such that only a signature of consent would be required by the employee to participate. The dearth of savings policy for non-restricted, short term uses could be addressed with a streamlined savings plan that benefits all parties involved–employers, financial institutions, and indviduals.

AutoSave leverages existing infrastructure, direct deposit, to streamline the delivery of post-tax wages into a non-restricted savings account. Any employer currently using direct deposit to pay their employees wages and salary can easily adopt AutoSave at little or no cost, and need not sort through complex rules or matching requirements. It’s simple: Every pay period a small percentage of an employee’s wages is automatically deposited into a savings account via direct deposit, with as little as an employee signature on a simple form.

The Asset Building Program is seeking employer (public, private, not for profit, and for profit) and financial institution partners (banks, thrifts, and credit unions) to participate in a national AutoSave pilot. Participants will, we believe, see significant positive behavior change in employees and customers who save. But the pilot is more than that: it is designed to rigorously test the theory that easy-to-do automatic payroll savings for short-term and emergency uses really does enhance family financial stability. Because if we’re right that it does, AutoSave could be not only hip but vital to identifying key determinants for accumulating unrestricted savings.

Drop us a line if you’re interested to learn more, or leave us a note in the comments section below, and please check the AutoSave page and the Ladder for AutoSave updates.