These days, businesses and consumers are trying to squeeze more from every dollar, but are we more disciplined when it comes to saving money?
The U.S. Bureau of Economic Analysis (BEA) tracks our personal savings rate. Your personal savings rate is how much you save as a percent of your disposable income (i.e., income MINUS expenses and taxes).
As diagrammed below, nationally, our fluctuating personal savings rate is up from an all-time low of 1.4% in 2005 — to 5.3% (as of August 2014). However, that’s a long way from the experts’ recommendation to save at least ten percent of our annual pay…
Direct deposit can help!
Consider your employees for a moment (and their families). How are they saving money? How will they handle the next crisis – when their car breaks down or needs new tires, or a family member needs a root canal? And are they putting any money away for college or retirement? (If your employees would start laughing hysterically if you asked them these intrusive questions, you probably have your answer.)
Here’s how direct deposit for employees can be beneficial…
Everyone knows it’s easier to burn through cash if it’s fattening your wallet rather than earning interest in your bank. The automatic nature of direct deposit makes it an attractive way to save. We become disciplined to work with the finite amount of money available and forget about the rest. Out of sight; out of mind.
Split direct deposits
When employees sign up for direct deposit, they can designate where their payroll dollars will go. So, if they choose multiple accounts for direct deposit, a portion of their paycheck can go directly toward building a nest egg. For example, they could ask you to deposit 90% of their net pay into their checking account, and deposit the other 10% in saving or possibly a personal retirement account.
At first the idea of split direct deposits may not seem like a big deal, but consider this fact: consumers who use “split direct deposit” save up to $90 more per month than other savings methods, according to NACHA.
(NACHA stands for the National Automated Clearinghouse Association, in case you’re wondering). With just a bit of discipline, your employees easily could save more than $1,000 per year just by setting up direct deposit to divide their paycheck. And that’s enough to pay for a set of new tires or some college textbooks!
Why should you care about personal savings?
From a “big picture” perspective, the personal saving rate is a good indicator of the U.S. overall economic condition. The chart dramatically shows the all-time high of 14.6% (May 1975) to August 2014’s much weaker 5.3%.
From your own business’s perspective, consider this fact from the FDIC-recommended America Saves organization:
“Finances are employees’ #1 cause of stress, which leads to higher health care costs for your company and negatively impacts employee productivity and morale.”
Roughly 20% of employees admit that they have skipped work to take care of family financial issues. And about one-fourth of all workers admit to being distracted at work with worries about money. That means missed productivity. That makes a lack of employee savings a problem for both you and your employees.
The power of direct deposit
Americans who have a plan for savings are twice as likely to control their spending. And direct deposit can definitely help a savings plan be successful.
There are more reasons to offer direct deposit to your employees … as listed in “Advantages of Employee Direct Deposit.” Hint: You could save as much as $3.15 per paycheck with direct deposit.
This content has been updated from its original publish date of 12/1/2010 to update the statistics and add related information.