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The cover story in the May 2016 issue of The Atlantic magazine shared a simple fact: 47 percent of Americans couldn’t come up with $400 to cover an emergency. And many of those caught in this crisis were middle-class Americans, not just people on the margins.

That article, by journalist and historian Neal Gabler, brought home the findings documented by Federal Reserve Bank researchers: Gabler described his own constant struggles to pay unexpected bills, landing him in the 47 percent despite his considerable success as a writer.

As officers of a suburban cooperative bank north of Boston, we were startled by the article’s message — and we recognized that some of our own 90-plus employees were probably among those 47 percent as well.

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Within three months, we launched an employee emergency loan program. Over the nearly three years since then, we have made 29 emergency loans of up to $1,000 to 17 employees — same-day processing, zero interest, no questions asked. They repay the funds over no more than six months by payroll deduction.

Not one loan has gone unpaid.

Now the Federal Reserve Bank of Boston is watching our modest experiment as one potential response to deal with the problem its researchers chronicle each year in the Fed’s Report on the Economic Well-Being of US Households.

Commonwealth, a Boston-based nonprofit committed to expanding financial security, has conducted a study of our bank’s emergency loan program — with an eye toward its possible application in other businesses and industries. We presented our results in December at the Boston Fed’s semiannual forum on savings innovation, and Commonwealth issued its report on our program in March.

The savings challenge for families has diminished only slightly since the 2015 Fed report from which Gabler drew his 47 percent figure, despite years of steady economic improvement. The latest Fed household well-being report, issued in May 2019, finds that 39 percent doubted they could cover a $400 emergency with cash, savings, or a credit card and pay it off at the next statement, and 27 percent would need to borrow or sell something to pay that expense. Twelve percent felt they would be unable to cover it at all.

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Those data points are remarkably similar to the results documented by Commonwealth on our bank’s employees and the emergencies they face each year. About half said they could afford an emergency expense with cash or with savings. Only one-third of those who had used a credit card for an emergency expense were able to pay it off in full on their next statement.

Employees reported that their emergencies average $1,022. This helped prompt us to increase the loan, in January, from the initial maximum $500 to a ceiling of $1,000. Forty percent of the loans were for emergency car repairs, while 31 percent were for home repairs, and 26 percent went for medical emergencies. More than 80 percent said they would consider using the loan in the future, mostly for medical expenses but also for car repairs and home repairs or appliance replacement.

Employees repay the loan through payroll deduction, starting the first pay period after they’ve taken the loan. Those who use the loan agree in a one-page sign-up form that, if they leave the bank, the full loan amount will be deducted from their final paycheck, with either earned-to-date income and/or unused vacation pay, or a combination of both. So there’s little risk for the employer with such a system, and every reason for other employers to consider offering a similar benefit.

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The employees of Reading Cooperative Bank have welcomed the program, even if they haven’t taken advantage of it personally. Two-thirds in the Commonwealth survey agreed that the emergency loan “sets RCB apart from other places they have worked or could work,” and “this is a great benefit that shows RCB cares about their employees.” This suggests that such a program may improve employee retention.

Commonwealth said in its report on our program: “RCB joins a growing number of employers who recognize the benefits of investing in their employees’ financial security. Nine in 10 employers surveyed by [human resource consultant] Aon Hewitt in 2017 said they were very likely or likely to focus on financial wellness ‘in ways that extend beyond retirement.’ Such benefits might include matched savings accounts, salary advances, financial counseling, and employer-sponsored small-dollar loans.”

Of course, providing emergency loans barely begins to address the more fundamental issue that the Fed is so focused on: the national savings crisis. Our next challenge is to find ways to help employees build up their savings.

Boston Fed senior business strategy manager Brian Clarke tells us that when the Fed discovered the $400 emergency crisis five years ago, “We knew we needed to act and think about new techniques to help people build their personal savings.

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“We’re working with financial security advocates and other partners to strategize on ways to attack the savings problem,” Clarke says, “including exploring ways to help employers take a more collaborative approach to worker finances, focusing on credit-building tools, and looking at how new FinTech solutions can help people save money and increase their financial security.”


Maxine Hart is chief human resource officer and Julieann Thurlow is president and chief executive of Reading Cooperative Bank.