Happy New Year!
Hope your holidays were filled with joy. My wife and I enjoyed our first Christmas with our 2-month-old daughter, who has recently begun smiling with the cutest dimple. Nothing quite like those rewards – and as you know at Sunny Day Fund, we love rewards!
In this post and letter, we will share our progress as a savings community, a market, a thought leader, and a product builder. We hope that this insight will urge our partners and ecosystem players to realize the incredible momentum we’ve seen across the board for what is ultimately a fairly simple solution – enabling workers to save right from their paychecks and guiding them as they use that cash when they need it.
Here are the five big takeaways up front:
- Our data found Sunny Day Fund's workplace emergency savings enabled employees to build and access their savings sustainably.
- As a benefit category, emergency savings is expanding rapidly and now starting to move on from innovators to attract early adopters.
- Through an omni-channel approach centered on our mission, Sunny Day Fund has become a thought leader in emergency savings
- Thanks to great feedback from Savers, customers, and partners, we're continuing to expand our product's capabilities to leverage generative AI, execute new integrations, and enhance our UX with new features.
- C-suite and investors remain at the decision helm - and they have the opportunity to empower their employees financially in 2024.
2023 Saver Metrics: How Workplace Emergency Savings Participants Saved
We reached big milestones in 2023 – including record contributions, withdrawals, and rewards. Considering most employees on Sunny Day Fund are earning median-level wages, most folks wearing a C-level or investor hat assumed very few employees would maintain a balance – that folks would be their worst enemy and tap their savings. Fortunately, our data tells a better story.
Contributions
On average, Savers – which is what we like to call Sunny Day Fund participants – contributed $144 per month and $1,593 per year. They also earned another $120 in rewards – what we call employer contributions – and interest. That’s like earning a risk-free annualized return of 15% (estimated) – way above the national average savings interest rate of 0.46% APY.
Withdrawals
But it’s not just about putting away money, it’s about keeping that money there until it’s needed for an emergency or a specific goal. On average, Savers had only 1.6 withdrawals over the course of a year for a total of $802. So they took out roughly half of they put in, but only a couple times per year.
And it was at various times in the year – the average monthly net savings rate was 89%, meaning roughly nine in ten individuals in any given month contributed more than they withdrew. Keep in mind that the most frequent 401(k) loan amount is for $1,000 (likely because that’s the minimum amount for most plans). More to come on the 401(k) plan impact in a later post.
Saving & Withdrawal Reasons
So, yes, people saved and were intentional with their spending out of Sunny Day Fund. We as a society spend so much time focused on getting people to save (what we really mean is contribute) in the first place that we forget that it’s for a reason. For nearly everyone on the platform, a withdrawal came due to an emergency. I fell into that bucket too, a pretty big and random car bill. But for most others, a withdrawal was a happier occasion. The top goal categories, in addition to an Emergency Fund, were Vacation, House, and Make My Own (a personally specified goal). Car was up there too.
So where did Savers end up in balances? On average, Savers ended the year with nearly $1,100 – even after the holiday withdrawals. I am especially proud to see us continuing to make progress with this number, even as we add clients, because we’re chipping away at the fact that 57% of Americans don’t have a $1,000 saved. For our older clients, the balances are closer to or beyond the $2,000 target savings balance to handle an unexpected emergency.
What We Expect from Savers in 2024
Our Saver predictions for 2024 reflect what we’ve observed thus far at a much larger scale and with one big, expected change: auto-enrollment of out-of-plan emergency savings. Because of the popularity of emergency savings programs across the aisle, among employers and investors, and with organized stakeholders focused on labor like workforce development boards and unions, we expect Congress may unlock auto-enrollment features and also clear the way for state level legislators to offer tax credits to employers, similar to the state auto IRA program.
As a result, the makeup of Savers will broaden up and down the income spectrum. Existing Savers will continue to build balances. Saving for the short-term will also become more popular and socially acceptable – much like workplaces that embracing mental health and wellness, imagine a colleague saying, “Yeah, I just started a Sunny Day Fund for a new apartment – it’s pretty cool!”
https://www.youtube.com/watch?v=AG1BB1XnchQ
Worker's Voices: Saving in 2023 and Financial Wellness in 2024
Finally, it has been an absolute delight to continue to hear from Savers themselves. But don’t take it from me – listen to our webinar when you have a moment. You’re also welcome to check out my takeaways from the webinar on LinkedIn.
Workplace Emergency Savings (ESAs) Market Expands and Attracts Early Adopters
You likely have seen a version of the innovation adoption curve before when talking about different markets or products. It shows / says that new things are typically adopted slowly and by a few, and then fairly quickly by most of the rest – you can see the breakdown and archetype in the graphic above. Along the way, there’s a chasm between the early adopters and the early majority where the whole existence of the product or market may fall before mass adoption. While this diffusion of innovations approach was first held for B2C, it turned out to be a helpful framework for B2B as well.
As a result of Secure Act 2.0’s emergency savings provision, Fidelity’s own offering and early success with Delta Airlines, and consistent drumbeat at almost every retirement savings or financial benefits-focused conference, it’s safe to say that the ESA market has now entered the early adopter space. This is roughly in line with Transamerica’s estimate that 40 to 60% of all employers will offer ESAs by 2026.
What to Expect for the ESA Market in 2024
So what can we expect in 2024 from the market? Here’s what I see:
- At least another 2-3 of the top 10 recordkeepers will announce new partnerships with, acquisitions of, or development of out-of-plan emergency savings
- Though pension-linked or in-plan emergency savings is the focus of the emergency savings provision of Secure Act 2.0, you will see scant adoption given the heavy restrictions, which amounts to a lot of work by recordkeepers. Policy as a result will adjust to reflect the market preference for out-of-plan
- Roughly 10-15% of the Fortune 500 will announce their ESA programs by end of year
- ESAs will leap from retirement savings and financial benefits conferences to broader HR, benefits, and innovative business leadership conferences
- Adjacent service providers, like payroll, health savings, or student loan providers, will enter to carve out ESAs for their respective niches – which in turn will spark interest from completely new entrants who may already be in stealth
- Roughly $50M-$75M will be invested by VCs into providers entering the ESA category
- The trigger to cross the chasm will be automatic enrollment
In simpler terms, I maintain my outlook that ESAs will be a multi-billion dollar benefits category of its own, and will likely surpass earned wage access and potentially health savings when all is said and done. It remains the missing complement to retirement savings benefits.
How Sunny Day Fund Grew As a Thought Leader in Emergency Savings
Just under four years ago, we did a survey to measure financial well-being, collecting demographic detail including income and assets. We asked a question building on the work of leading researchers that unboxed how employees thought about and prioritized emergency savings as a benefit.
Since that first survey report, we have become a proud thought leader in the workplace emergency savings space. We’ve shared early results from employer implementations, partnered with researchers to evaluate new behavioral science and communications techniques to drive better savings outcomes, reflected on policy levers that could accelerate market adoption and preserve consumer protections, and became a fixture in the big discussion around where exactly emergency savings fits into the retirement-heavy workplace financial benefits ecosystem.
Sunny Day Fund's ESA Thought Leadership 2023 Highlights
It’s hard not be proud of what we’ve done, tiny as we are, in service of our mission. So, here are a few highlights I wanted to share:
- Launched with several employers who excitedly shared their employee investment publicly, including California Closets and Farmington
- Shared our approach from actual client rollouts and RFPs so that HR leaders, benefits consultants, and retirement plan advisors had a playbook for choosing and launching an emergency savings program
- Presented at several conferences as a speaker, panelist, or a moderator, including DCIIA’s Innovation Forum and Academic Forum, Aspen’s Financial Security Program events, and Pew
- Leveraged our public spotlight to present data on the intersection of DEI, financial well-being, emergency savings, and the workplace – including with WISER, FinTech Sandbox, and Of Color
- Shared our story with tons of folks via podcasts and stories like Females & Finance, Indeed, The Savings Advocate, badcredit.org, and Her Retirement
- Wrote lots of great blog posts, doubled our LinkedIn followership (3K+ followers!), and had a whopping 232 posts. Here’s our top post talking about our shoutout in The New York Times!
- Won the MassChallenge Alumni Award in recognition of our growth and impact
- And of course, announced Workday’s recent CIO Ernesto Boada joining our founding team!
You can count on us continuing to be a thought leader in 2024 across the emergency savings, financial wellness, and financial inclusion and equity spaces. Thanks for engaging us!
2024 Outlook: What to Expect from Sunny Day Fund
We already talked about what we can expect from the Savers and the market. But what about us as a product? Here are the five big things we have in store for you in 2025.
Hey Sunny: AI-Enhanced Savings Experience
Much of the beauty of what we built lies in its simplicity. We are taking a very tried and true concept of saving, and making it seamless from the paycheck with a great, behaviorally-focused user experience. Even before 2023’s flourishing of AI solutions, our team had been thinking about how to leverage the tremendous new sources of data Savers have created for themselves. We know humans can never exit the mix – especially with our Savers, we know trust is extremely important. But generative AI can learn from your behavior, nudged by our principles, and enable each individual to become their own unique version of a better Saver. Expect to see a more powerful user experience with AI-enhanced components.
Portable Partners Make Perfect: Integrations for UX & Data
Have you ever been to a portal with a billion links and you don’t know where to start? Even with the more beautiful UI that benefits admin tools have brought to employers, the underlying problem hasn’t subsided. We won’t be able to make all of it disappear, but we will certainly help Savers’ experience as they transition from their recordkeeper’s 401(k) portal to their Sunny Day Fund, and vice versa, all the while retaining account portability. More interestingly, we will finally be able to cross-link ESA activity with retirement savings activity to further prove that emergency savings and retirement savings are symbiotic.
Flexible Finance: Banking, CMA, & Credit Union
Workplace emergency savings products today are mostly focused on the banking sector, where Savers receive a savings account at a depository institution insured either by FDIC if a bank or NCUA if a credit union. With new financial institutions and deposit variations with their own respective insurance eligibility, and employer leadership with their own preferences, it’s worth exploring what a financial institution-agnostic ESA could look like, especially in the credit union space.
(Note: Sunny Day Fund Solutions Inc. has partnered with Portage Bank, Member FDIC, to offer the Sunny Day Fund ESA Account to you. Sunny Day Fund Solutions, Inc is a non-bank that is not itself an FDIC-insured institution. FDIC deposit insurance coverage only protects against the failure of an FDIC-insured depository institution.)
Data Tells the Story: Analytics for Employer & Beyond
Our current platform already is equipped with great analytics and self-serve data pulls, all compliant with privacy standards of course. But we have more automated reports, visuals, and metrics in mind, especially as we work with larger and larger clients who crave that type of analysis to understand our program’s impact on retention, health, and retirement security.
Native Learners: App Embedded with Discovery
We had made a conscious decision to not roll out an app to stay true to our financial inclusion and equity principles, which also promotes digital inclusion. But one big advantage of a native app is the ability to provide a more beautiful UI around video and learning modules. Expect more “discovery” opportunities as we work with partners eager to bring their unique content and services to our Savers.
Decision 2024: Vote for Emergency Savings
When financial or benefits pundits look back on 2023, they will mark it as the catalytic year for the emergency savings category. But the transition to that ubiquitous future lies in the hands of leaders who must choose to enable their employees to save, set aside a modest budget for rewarding that behavior, not unlike retirement savings or wellness programs, and execute as early adopters to retain their competitive position in their respective industry.
And for those that vote for emergency savings in 2024, reach out to us or refer us business – our team and I can’t wait to work with you and your Savers. Till then, happy new year!