Ronnie Washington is changing the financial outlook of the American working class through a novel employer-sponsored savings program that he hopes will someday be as ubiquitous as tax-advantaged health savings and retirement accounts.
The New Idea
Ronnie has created a model for employers to proactively address the financial fragility of America’s working class. Just as it is standard for businesses to offer tax-advantaged financial products to ensure security in retirement (like 401Ks), Ronnie believes that it can and should be the norm to offer products to ensure financial security during people's working years as well.
To show that this is possible, Ronnie works with mid-sized employers and banking partners to offer employer-matched emergency savings accounts, access to better financial products (like car loans from banks versus “pay as you go” used car lots), and on-going, mobile-based financial education. By supporting workers in building up an emergency fund in much the same way retirement savings are built, Ronnie proves that his approach not only changes the lives of workers, but also benefits employers, the economy, and society as well.
Onward, the organization that Ronnie launched as the vehicle for this idea, not only develops and deploys this new model but acts as a matchmaker and a field builder. While showing how businesses, banks, and even policy makers can build on-ramps to savings, better financial behaviors, and more stability, Ronnie and his team at Onward are making the case that financial education resources and tax-advantaged emergency savings accounts can and should become as ubiquitous as retirement savings.
Working class Americans are in a precarious situation. Seventy-nine million American workers – more than half the nation’s workforce – make less than $20 per hour. Two thirds of Americans have less than $1,000 in savings; half have less than $400. For emergencies like a car breaking down – not to mention more costly changes like a move or an unexpected medical expense – millions of people facing unexpected expenses that they can’t afford are faced with very limited and hard choices.
Because the most financially insecure tend to have no collateral and low credit scores, most conventional banks won’t extend credit. According to the PEW Charitable Trust, a leading philanthropic authority on consumer finance, this drives twelve million Americans per year to take out payday loans. “Payday loans offer small amounts of cash ($375 on average) to people who have an income source and a checking account. In exchange, lenders charge a fee and have the right to withdraw repayment in full from the borrower’s checking account on his or her next payday.”4 For the average borrower, repayment of the loan plus the average $55 fee represents 36% of their gross paycheck. Since future paychecks have a purpose, be it rent or food or utilities, most consumers cannot afford to pay back the loans in full immediately. Instead, the majority are forced to renew or reborrow the loan, incurring an additional $55 fee. The average borrower of $375 will end up paying $520 in fees. (All in all, the payday loan industry makes US $9 billion in revenue from fees alone per year.) The overwhelming fees prevent saving and undermine financial security, and even when the loans and fees are repaid, none of this financial activity is reflected on the borrowers credit score, further limiting peoples’ financial prospects. All for the lack of access to just $400.
For individuals, having such a small financial cushion and such limited access to credit contributes to a feeling of anxiety and panic. At the macro level, when the majority of the American workforce is financially unstable, employers experience high rates of absenteeism and turnover. When a worker’s car breaks down and she’s short on cash, she’s faced with some pretty tough choices: taking out a payday loan, calling in sick, or picking up work closer to home.
Well-intentioned employers may offer advances on pay themselves, but this puts them in a subjective and complicated position. And while getting access to some of your future earnings upfront may relieve some immediate pressure, slipping into indebtedness just pushes bigger financial burdens down the road.
In the personal and consumer finance sector, it’s widely understood that building a small emergency savings “cushion” can be a game changer, but this goal can feel so out of reach to individuals who may already be in debt and who can’t access conventional financial products. Plus saving money is hard, and not just for the most cash-strapped. Indeed, the lowest-paid Americans are not alone in their financial vulnerability. Ronnie points out that “a full 67% of people across all income levels report that they feel they are struggling and that they are living paycheck to paycheck. Therefore, the solution isn’t simply pay, it is also education and products that allow all workers to build in financial security with every paycheck.”
(Here, Ronnie and other personal finance advocates must walk a fine line between underscoring the importance of shifting to a culture of saving on the one hand, while not also perpetuating the unhelpful and untrue stereotype that the financial insecurity of the working poor is wholly a personal failing.)
Ronnie has seen firsthand that when people feel more secure, they don’t operate from a mindset of scarcity. He’s been encouraged by employers’ willingness to offer solutions, too. Unfortunately, the landscape of financial products being pitched to individuals and employers is quite sparse. The few other social enterprises tackling the issues that spawned the predatory payday lending sector are still mostly innovating around less-regulated (and less game-changing) “pay advances.” And, as venture-backed for-profit entities, they seek to make a profit; maybe not $9 billion per year on the backs of the nation’s poorest, but still at rates that the most financially insecure can’t afford.
Ronnie launched Onward and its suite of financial services as a way to show that, with the right structures and incentives, “even our nation’s most vulnerable can be financially secure and healthy.” Ronnie proves that, if given an on-ramp to savings and a warm introduction to good financial behaviors, the most vulnerable workers in America can become more emotionally and financially secure individuals, and also more reliable as employees and more valuable as customers.
Ronnie piloted this novel approach in 2017 in a factory in Kansas City, one of most notorious “payday loan hotspots” in the country. The manufacturer, Prier Products, has been in business for more than a century. The company’s team of around 100 employees proudly claims that they’ve personally produced the outdoor faucets found in most homes in the U.S. But even this longtime, steady employer was seeing its workforce getting caught up with payday loans. In an article in the Kansas City Star, Joe Poskin, who runs Prier Products, shared, “We’ve been trying to get our people to save money since we started.”5 Over the years they’d offered holiday bonuses in the form of savings accounts and on a case-by-case basis would extend advances on pay. But still Poskin estimated that more than 80% of his employees couldn’t afford to have their car break down.
Then Ronnie arrived. Working with Poskin and a local credit union, Ronnie was able to offer the Onward Financial program to all of Prier Products’ employees. What employees get is the invitation and encouragement to save small amounts from each paycheck with the credit union, in this case matched by their employer up to a certain amount. Onward brings together a user-friendly mobile and web interface, a national banking partnership, and ongoing integration with the payroll providers. In this way they create a seamless flow of dedicated funds from workers’ paychecks to newly established savings accounts that become the foundation of financial security. After three months of savings, workers on the platform can access small low-interest loans, with the option to repay incrementally over time by payroll deduction. During their repayment period they are building their credit, and once the loans are repaid, they are encouraged to keep directing the equivalent of their repayment into their savings accounts. Throughout it all, the platform offers encouragement, educational information, and small ‘nudges’.
While employers can’t see specific savings and financial behaviors of individual employees, they get reports on participation rate and total savings, for example. And Poskin at Prier Products notes that, “nearly every employee now takes part in the program.” Suddenly the majority of his employees are in the minority of Americans who have access to personal savings of $500 or more.
For Ronnie, the most important impact is on the individuals who build confidence that they can save and gain a more real sense of agency in their life. Ronnie believes that intentionality and a sense of personal accomplishment in taking that first action is critical, as in the case of opening a savings account and setting a savings goal. While the system’s “set it and forget it” nature then kicks in, the combination of action and consistency helps build individual confidence and growing financial independence.
Though the employers are invested (sometimes literally through their matching programs) in these savings accounts, they are held solely by the employee and in a separate account with a FDIC-insured financial institution. This means that the employee’s savings move with them. Not only is this far more freeing than pay-advances from your employer and more financially savvy than turning to predatory loans, having a small cushion is a far more sustainable way to deal with emergencies. And for the individual, building funds builds confidence.
Onward’s work to date has so far focused deeply on three manufacturers with 350 individual employees enrolled. With this relatively small group Ronnie and his team have conducted two years of rigorous AB testing of their product, refinement of their platform, and monitoring of participants’ behavior change. They’ve secured more than $1M in philanthropic funding and have added key roles to their team – from Chief of Product to Director of Sales – so that they can go fully to market in 2020. A key to Ronnie’s spread strategy is targeting America’s mid-sized employers, where employer-matched savings accounts can become a key distinguishing factor for job seekers, and greater stability and financial security a direct contributor to employees’ greater productivity and quality of life.
Ronnie knows that what he offers is game-changing for individuals and for employers alike. And he wants to ensure that financial security during people’s working lives is as ubiquitous and supported a goal as security in retirement, with a competitive field of financial products and federally-subsidized tax incentives to prove it. According to Ronnie, “in order to achieve wider adoption, we believe a tax-advantaged status or other financial incentive to the employer will be necessary.” Therefore, Onward will use case studies to show not only the impact their program has on the lives of workers, but also the societal and economic cost benefit of allowing workers to save for emergencies. Like tax advantaged retirement or health savings accounts, Ronnie would like to see federal support of up to $2,000 in a tax-free emergency savings. As part of that sort of policy change, Onward offers the best example of how this can work, and Ronnie is keenly aware that “the national conversation around emergency savings has never been higher and now is the time to deliver…Whether it is Onward directly or through organizations we inspire, this movement will happen. It’s my personal goal to make sure Onward and those with similar missions provide a counterweight to solely profit-incentivized efforts that may arise.”
Ronnie’s understanding of the problem he’s dedicated his life to solving is rooted in personal experiences: “In early 2011, my uncle, one of the hardest working individuals I know, faced head on what it means to be financially insecure. He did everything in his power to provide for his family of 4 including working 6 days a week and even contributing to his retirement. However, in spite of all these efforts, one day his car broke down and the burden of panic overcame him. If he wasn’t able to get his car fixed, he would miss days of work, miss days of pay, and potentially get behind on his bills. It’s this level of desperation and helplessness that led him to the door of a payday lender which would give him a little over the $400 he needed. What I didn’t realize then that I do now is that my uncle isn’t alone. Conversation after conversation with workers across this country revealed that there is a systemic issue at hand. Whether it is a car breakdown, unexpected bill, medical expense, or even something as simple as a parking ticket, the people our nation rely on to drive the economy are falling behind one financial shock at a time.”
Shortly after this experience, Ronnie decided to quit his job as a management consultant and moved to Ghana to work with the microfinance organization Global Brigade Ghana. As much as he appreciated his time living and working in rural West Africa, Ronnie’s uncle’s story stuck with him. Upon his return to the states, he dedicated his subsequent two years at business school to “understanding how I could take the lessons learned to address financial insecurity in the U.S.”
The solution he would land on is Onward, and the rest – as they say – is history.