How Behavioral Economics Can Build a Cash Reserve

When I was in business school, one of my professors mentioned a case when an Executive Director that she knew had to raid her retirement accounts to make a payroll. The group was funded by a large source whose payments were reimbursements, and the cash reserve was inadequate for the perfect storm of payables. The money came in eventually, but I think we can all agree that this type of financing is a really bad idea. The fact is, 46% of respondents to a 2015 Federal Reserve Board survey mentioned that they would have trouble coming up with $400 in an emergency.

I suspect that the demographics of the nonprofit sector workforce are in this category, which makes it an issue for all of us. The May issue of the Atlantic featured a long article on the emerging practice of associating behavioral economics with social goals-- and aimed specifically at the 67 million Americans who don't have access to traditional banking systems. Walmart has led the charge on providing lower-cost financial services and offering incentives to save through the MoneyCard. These profit-driven, industry-led prepaid cards are not perfect, but for many low-income Americans they are the the best alternative for budgeting and saving. It's a trend to keep an eye out for.