Family Finances

Joint Principles for Effective Emergency Savings Policy

March 16, 2022  • Tim Shaw & Delaney Crampton

As the Covid-19 pandemic and recession reminded us, millions of Americans are not prepared to weather a financial emergency. Policymakers have an opportunity now to create ways to better support individuals and their families to maintain financial security and build opportunity, and emergency savings is a readily available solution. 

Families and individuals often find themselves in need of a lifeline during a time of crisis, but for too many Americans, the answer is credit card debt, high-interest loans, or drawing down their retirement savings. Prior to the pandemic, 40% of Americans reported that they would struggle to afford a $400 unexpected emergency and 1 in 4 households now say they have no emergency savings at all.

Moreover, disparities across income and race show that in the face of economic crises, certain demographic groups are hit harder than others. Forty-three percent of households making less than $50,000 a year recently reported having no emergency savings. In addition, for every dollar that white households had in emergency savings, Latinx and Black households had just $0.25 and $0.07 in emergency savings, respectively. To support families and individuals in building long-term resilience and financial security during this pandemic and in the face of future crises, policymakers have a critical opportunity to make emergency savings accounts easily accessible.

Principles for Emergency Savings Policy

Many viable options exist for policymakers to boost emergency savings. To maximize impact, policy innovations should adhere to five key principles:

  • Allow for automatic enrollment in workplace emergency savings
  • Ensure emergency savings are their own “bucket” of savings
  • Allow for a wide range of options, particularly for low-to-moderate-income (LMI) households
  • Design emergency savings to meet household needs
  • Safeguard retirement savings
Allow for Automatic Enrollment in Workplace Emergency Savings

Many employers have started offering emergency savings accounts to their workers, but participation is hampered by the inability to automatically enroll employees (who can then opt out if they so choose). For example, in a retirement-linked emergency savings program in the UK, while nearly 60% of employees at one employer believed that these savings accounts would benefit them, just over 1% of eligible employees signed up for the plan when not automatically enrolled.

When automatic enrollment became a standard feature of 401(k) plans in the US, participation nearly doubled, with 93% of new hires contributing. Automatic enrollment also dramatically increased participation among younger, lower-income, and female employees. Automatic enrollment can help ensure equitable access and participation to emergency savings plans in the workforce.

Ensure Emergency Savings Are Their Own “Bucket” of Savings

Behavioral scientists have consistently found that to ensure emergency savings are used effectively for short-term, unexpected expenses, they should be held in a separate account, or “bucket,” rather than combined with other kinds of savings. Setting up multiple accounts—such as one for emergency savings and another for retirement savings—provides psychological separation, helping ensure emergency savings are used when needed and long-term savings are preserved. To maximize positive impact, an emergency savings policy should support models that allow for this important savings design feature.

Allow for a Wide Range of Options, Particularly for LMI Households

Various types of workplace emergency savings accounts can be offered to workers, including accounts linked to a retirement savings plan, accounts provided through a bank, and those provided by payroll card. Supporting only one type of emergency savings account could stifle innovation in the market developing these accounts and exclude key households who desperately need emergency savings. For example, 58% of workers in the bottom quarter of earners do not have access to a work-based defined contribution retirement plan. Policymakers should support all types of effective plans, especially those that would benefit LMI households.

Design Emergency Savings to Meet Household Needs

Households have a wide range of financial needs, and emergency savings should be sufficient to meet those needs when income alone cannot. Researchers recently found evidence that savings of up to $3,000 are a necessary cushion for low-income households, and a JP Morgan Chase Institute study found that the typical family needs around six weeks of liquid assets to cover emergencies. Emergency savings policy should include solutions that meet full household emergency savings needs.

Safeguard Retirement Savings

Emergency savings can be an important buffer against early withdrawals from retirement savings. Throughout the pandemic, households with at least $1,000 in emergency savings were half as likely to withdraw from their workplace retirement savings accounts. In addition, by replacing the need to use retirement withdrawals or loans, a separate bucket of emergency savings may reduce the number of people who regularly withdraw early from retirement savings. In contrast, policies that introduce additional liquidity into core retirement assets could carry risk for household retirement security if they incentivize early withdrawals from retirement funds. Policymakers should ensure that emergency savings policy solutions support the preservation and accumulation of retirement funds and do not inadvertently incentivize leakage from retirement savings.


The pandemic has shed light on how instrumental emergency savings are in helping people overcome long-term unemployment and sudden economic shocks. Policymakers should incorporate the emergency savings principles outlined above by prioritizing automatic enrollment, supporting emergency savings models that are their own “bucket,” protecting retirement savings, and enabling multiple models of emergency savings products that address household needs, especially LMI households.

These principles were jointly developed and published by AARP Public Policy Institute, the Aspen Institute Financial Security Program, the Bipartisan Policy Center, Commonwealth, and Saverlife.

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