Would employer-sponsored ‘rainy day’ savings accounts help us save for retirement? GlobeMoney
, which is the phenomenon in which we treat money differently based on various factors, such as the labels we might assign to different sources of funds.
As an example, suppose you didn’t have an emergency fund because you were relying on your retirement savings to do double duty as your rainy-day funding source if needed. And let’s say you have $100,000 in your retirement account. Then one day your refrigerator breaks down. Instituting employer-sponsored rainy-day savings accounts would undoubtedly raise the concern about substitution effects. In other words, with some money now going to an emergency fund, would that not crowd out retirement contributions and lead to lower retirement funds as well? Dr. Madrian believes the question really is about competing substitutions.
Incorporating a rainy-day fund would offer a solution with its own substitution effect , but if having the dedicated fund leads to less emergency-fund spending, then this would be the superior choice. There could be other potential benefits such as stress reduction, which has been linked to higher productivity by employees.
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