Case for Change

Many working Minnesotans aren't financially fit. The current economy has employees wondering if saving for retirement should be a priority. Even in these uncertain times, it is vital that employers take steps to ensure their employees are saving for retirement. Collectively, a long-term approach to retirement savings can help ensure a prosperous future for Minnesotans. Employees who do not participate in savings plans significantly jeopardize the financial well-being of themselves and the community. Employer-sponsored savings plans are one of the best ways companies can directly impact the financial fitness of people in the community.

Trends in Personal Financial Behavior

Personal savings rates are at historic lows across the country while debt soars.

The number of payday loans in Minnesota has grown 45 percent per year since 2000, signifying desperation and highlighting the need to reduce the number of “unbanked” Minnesotans.

People without bank accounts often use costly money exchanges and payday lenders. Over time, check cashing fees can add up substantially.

Learn more about trends in personal financial behavior.

Direct Deposit and Payroll Cards

Employees who participate in direct deposit are less likely to use money exchanges and payday lenders because direct deposit requires an employee to either have a bank account or be paid via a payroll card. Payroll cards, or “stored value” cards, can be used to obtain cash at ATMs. Using a bank, ATM or stored value card to get cash saves employees money every pay period by avoiding check cashing fees. Furthermore, people with bank accounts or stored value cards are significantly more likely to save a portion of their paycheck.

Employers can help employees avoid money exchange fees and retain more of their income by encouraging employee participation in direct deposit. Data suggests widespread and increasing use of payroll cards:

  • Currently, three out of four US workers receive their wages electronically. A
  • In 2006, 7 million people received their pay via payroll cards. This is expected to increase to 17.5 million by 2010.B

Employers benefit from paying employees via direct deposit in the following ways:

  • Reduced cost of processing paper payroll checks (estimated cost savings of $48 per year per employee)C
  • Reduced chance of fraud
  • No need to replace lost checks

Sources:
A ElectronicPayments.org
B State Recognition of Paycards, American Payroll Association, April 2007
C Payroll Cards Improve Direct Deposit Participation, Ezine @rticles, May 2005

Retirement Savings: Data and Trends

While the U.S. population ages, fewer employers are offering employee retirement plans.

  • Over the next 40 years, Americans over age 64 will increase by more than 125 percent.
  • Today, only 60 percent of American workers have employer-sponsored retirement plans, down from 80 percent ten years ago.

Many individuals aren’t saving enough for retirement.

  • Nearly 45 percent of households are at risk of not being able to maintain their current standard of living after they retire.
  • The average life expectancy after retirement has increased significantly - from eight years in 1950 to nearly 20 years today.
  • Forty-eight percent of U.S. workers have less than $25,000 in total savings and investments.
  • Only 14 percent of all workers and four percent of minority workers have more than $250,000 in total savings and investments

Minorities and low-income workers are far less likely to participate in retirement savings plans, even when plans are offered. Consequently, minorities have far less in accumulated savings and retirement plans.

  • Seventy percent of African-Americans and 72 percent of Hispanics have less than $25,000 in savings.

Learn more about retirement savings data and trends.

 

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