A National Strategy for Financial Inclusion? We like it.
This week we have the pleasure of chatting with Ida Rademacher, Vice President and Director of Aspen’s Financial Security Program, and Karen Andres, Director of Policy and Market Solutions for the Program.
We cover four hot topics: the power of automatic enrollment. What happens when we re-imagine retirement? Innovation among our financial services providers. And maybe most importantly, the call for a national strategy on financial inclusion.
Ida and Karen, you are deeply involved in Aspen’s work on retirement savings and financial security.
Ida Rademacher: Yes. The financial security program's focus is the grounding and understanding of the critical challenges facing households in America today.
We work on the acute, urgent financial challenges of income volatility, and what's going on with consumer debt. And with our retirement security initiative we look at the long-term elements like retirement savings, which is an anchor piece of long-term financial security – and with it agency, and identity, and legacy.
Karen Andres: We’ll say more about this, but increasingly we think of this not just as a retirement security initiative, but as an inclusive saving and investing initiative.
The retirement savings system, as we know and love it here in the US, isn't just about producing income security in retirement. It is also the second largest source of household wealth in the United States.
It's where most people access the capital markets for the first time or for the only time. It may be the only place in their life that they're exposed to market rates of return: equity markets, bond markets, etc. And that has proven to be a really powerful wealth generator for Americans.
in 2020 you reimagined retirement in the US. One tenet was the importance of universal access to workplace savings. Others included emergency savings, portability, and lifetime income. Are we making progress?
Reimagining Retirement In a Time of Uncertainty
The Aspen Institute Financial Security Program convened its fourth annual Leadership Forum on Retirement Savings in early March 2020. It was the beginning of a time of deep challenge and uncertainty. The global health crisis and local events, including racially influenced killings, sparked social activism and calls for change.
As the Forum drew to a close, four priorities emerged as design principles essential to creating a more robust, inclusive and practical retirement savings ecosystem for people across America:
Provide universal access to automatic enrollment in workplace retirement savings.
Help workers build liquid emergency savings alongside their retirement savings.
Make retirement savings portable.
Innovate to create lifetime income streams for everyone.
You can read the full report here.
Karen: Access. So among states we are seeing continuing, increasing, focus on retirement savings access, including through Automatic IRA programs. We are also seeing more convergence in the way those programs are designed. States seem to be focusing in on a common set of characteristics that work best, which I think is a good thing. (See more on state retirement programs here)
Obviously, we’ve got California getting through their third wave and adding thousands and thousands of employers. So we're getting a lot more data on what is working about universal automatic enrollment requirements at the state level. (See more on CalSavers here.)
Federally, the Build Back Better Act (retirement provisions) did not go through, but there was a really robust conversation within that process about what would it look like. How might we structure a national automatic enrollment requirement, and how might the mechanics of that work – including alongside a set of existing, successful state retirement savings programs.
The metrics we see are exciting and proof positive of what a more portable solution can look like.
At the same time, a couple of data points tell us we have more to do. Vanguard’s How America Saves 2022 shows that a significant portion of plans still don't have automatic enrollment. So let us not forget that there is basic blocking and tackling to do.
We think we hear you saying that in the process of focusing on retirement savings coverage, we've identified that the act of saving for retirement, automatically out of the paycheck, is a lot more powerful than we first thought.
Karen: It's a lot more powerful for those who have access to it. Automated retirement savings is an extraordinarily powerful wealth generating mechanism. It's won awards – in fact Richard Thaler won the Nobel Prize for getting the design of the first half of the arc right, on the retirement savings side.
We've automated it. We've taken the human behavioral pieces out of it. It's gorgeous. I will say the second part of it we haven't touched yet on the behavioral design side. This is the draw down on the decumulation side. More work to be done there. But yes, I think we have learned that for those who have access, automated retirement savings is extraordinarily powerful.
Ida, are you seeing other progress since 2020?
Ida: Yes. I think the things that have moved the most include the addition of liquid savings, sometimes called emergency savings, as a critical facet of a saving system. If we are serious about expanding access, we need to understand that creating a high friction, long-term savings account isn’t the only answer when people don't have the $400, the $1,000, they need to self-insure against small shocks.
The good news is that the liquid savings work has moved forward, both in terms of the strategies for leveraging workplace payroll and how you can do automatic workplace emergency savings. We are seeing retirement-linked and standalone solutions.
Liquid savings: We are also seeing this as a more main stage conversation with policy leaders and legislators.
Karen: We’ve seen a pretty fast transition from “40% of Americans don't have $400” to “here is a set of design principles for emergency savings products and tools that are demonstrated to work for people.” What helped us get there so quickly was pulling in a diverse, cross-sector set of experts who could speak to what they've seen work in different contexts. This includes people from other countries where we get to ask what are they doing? What are they trying? What does all the data say?
Suddenly we have progress and there are two different emergency savings proposals embedded in various packages that could come together to form Secure 2.0. And we're excited. (See more on workplace emergency savings policy here)
We’re also seeing interesting activity around portability in two forms. One is the state programs, where a worker with multiple employers has a single account. The worker moves, the money stays with them. Another is work we’re seeing in the private sector to design systems that can follow a worker from employer to employer, K plan to K plan, and strengthen that version of portability.
This work is rooted in what is true for people, the needs that they have, and what's happening in their lives. Let's start with where people are, what their lives look like and design for that. I think that's an enormous amount of change in a few years.
Much of your work involves convening and engaging with a wide range of providers and experts in the financial services space. Why?
Karen: So retirement savings occurs within a complicated supply chain. There are lots of players in it. They have different and very specific jobs. It's very highly regulated and margins are compressing in that supply chain.
I think that’s forcing some interesting and innovative decisions around how companies either outsource, or build in-house, new tech stacks that can handle the kinds of customer experiences people are used to in other parts of their financial lives. I'm very excited about where that can go.
Look at what Vanguard is doing with InfoSys, for example. We all need to start from the household perspective. I don't have my phone with me otherwise I would hold it up and show you. We’ve all become accustomed to a level of interface and prompting, if not full on automation, in our banking and payments life. We could use more of this in the 401(k) and retirement savings world. The interface matters, the UX matters. It’s what helps users make the right decision, the easy decision, or sometimes no decision at all.
I'll lump together here a bunch of terms: crypto, defi – decentralized finance, blockchain, distributed ledger, stable coin. Across all of the different household financial needs and challenges that we work on, we are embarking on a learning journey over the next 9-12 months.
Bringing folks along with us who are more expert, we’re starting a serious exploration of what all this means for the financial products and services people use. All these things may seem very techy and nerdy, down in the guts of the system, but can actually translate to better savings outcomes. The providers are key to this.
On the policy side, increasingly we've seen providers willing to engage very seriously, seeing that their voice matters in the policy-to-product space. They’re speaking up in favor of access expansion, or changes to ERISA that might enable automatic enrollment into emergency savings. They’re sharing what they see in customers' financial lives and stepping up in exciting ways that make the combined policy and provider space far more effective.
Ida, you’re doing something interesting this week.
I am. I'm down in Santa Fe at Smoketree, which is a fantastic brainchild of Jo Ann Barefoot who runs the Alliance for Innovative Regulation. It’s a gathering of a broad swath of people from tech and policy and finance focused on FinTech and the future of finance. We’re here to continue to anchor all of the potential innovation in a reminder of what are the real problems we can solve with these tools. With financial innovation and we often start with the things that are familiar to us. But what are the problems that if we solve, we would unleash an entire different level of financial inclusion, participation, and outcomes?
We may have unintentionally saved the best for last. You’re working on a national strategy for financial inclusion. What do you mean, and how can folks get closer to this.
Karen: The United States is unique among developed nations in not having a national strategy for financial inclusion. Unique. So we are working to change that. We now have over 110 organizations, including some big ones, that have added their name to this call for action. (Find the call for a national financial inclusion strategy here).
We know already that people just have one financial life. I don't have a retirement savings life, and an emergency savings life, and a debt life. No, I have one financial life. Because money has to flow through a whole bunch of other buckets and pipes before it gets to retirement savings, retirement savings is the ultimate ledger for how everything else is going.
Maybe these design changes are policy and maybe they're product. They're probably both. We are currently working on an initiative to understand exactly what is going on by race and gender, and geography and generation, to improve the ability of the system to work as a wealth generator for everybody. It's an imperative.
A national strategy for financial inclusion will be a key part of seeing these efforts through, together.
Ida and Karen, we appreciate the fresh thinking you bring to your work every day. It’s been our pleasure to be part of your convenings and innovation, and we can’t wait to see what’s coming next.
Want more? You can connect directly by email: Ida Rademacher and Karen Andres. You can learn more about the Financial Security Program here. You can also connect on Twitter: @AspenFSP
Ida Rademacher is a vice president at the Aspen Institute and executive director of the Aspen Financial Security Program. Her efforts have resulted in the creation of several new cutting-edge initiatives, including the Expanding Prosperity Impact Collaborative (EPIC), the Reconnecting Work and Wealth Initiative, and the Aspen Leadership Forum on Retirement Savings. Through these projects Ida, her team, and others are building a cross-disciplinary community of leaders and change agents who, together, are deeply probing critical financial challenges facing U.S. households and shaping market and policy innovations that can improve the financial security and financial well-being of all Americans.
As the Director of Policy and Market Solutions and Project Director of the Retirement Savings Initiative at the Aspen Institute Financial Security Program, Karen Andres works to advance promising solutions to American families’ most pressing financial security challenges. Working across sectors and disciplines, Karen and the Policy and Market Solutions team seek to highlight market and policy gaps, jumpstart creative solutions, and build a diverse set of leaders who can turn ideas into action.
This piece was featured in the August 11, 2022, edition of Retirement Security Matters. For more fresh thinking on retirement savings innovation, check out the newsletter here.
