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An unexpected car repair, medical emergency or slow week at work can upend the financial lives of Americans that live paycheck to paycheck. A survey conducted by the Federal Reserve found that only 68 percent of Americans can afford to pay off a $400 emergency expense with cash.
Rachel Schneider saw this firsthand by studying the finances of 235 American families over the course of a year. Schneider, a former investment banker, conducted this research in collaboration with New York University Professor Jonathan Morduch for a project called the U.S. Financial Diaries.
Their research found that struggling families’ monthly income could vary by as much as 40 percent every month, Schneider said. These spikes and dips in income, which can be caused by a reduction in hours or a tuition reimbursement check that only comes twice a year, can result in credit card debt and missed rent payments, causing evictions and other setbacks that could trap them in a vicious cycle of poverty.
The financial instability of these families was made more volatile with inflationary increases in rent, groceries and gas. The U.S. Bureau of Labor Statistics’ most recent inflation report found that consumer prices in December 2022 were 6.5 percent higher than in December 2021.
Through her research, Schneider realized that emergency relief funding could play a vital role in helping struggling Americans overcome these cash flow bottlenecks in the event of an unexpected emergency, like a natural disaster, car repair or expensive medical bill.
Private Sector Solutions
As she researched more about emergency aid funding, Schneider learned that large companies like Walmart, Target, Starbucks and The Home Depot already have financial assistance funds to help employees during unexpected emergencies.
After working with some of these companies and learning the ins and outs of how these programs are structured, Schneider decided to start Canary. The fintech startup makes it easier for companies to distribute emergency relief for employees experiencing financial hardships.
“I thought if large employers have figured out how to do this, then we can develop a tech-first approach that makes this a ubiquitous practice for all employers,” Schneider, CEO and co-founder of Canary, told Built In. “It can be hard to field a large number of applications from people and make sure that you are funding people in consistent ways across an employee population. That can be really beautifully solved by behavioral design and a smooth application process.”
Schneider said it can also be a challenge for large employers to make their workforce aware of financial assistance programs and what types of economic hardships qualify for the program.
Canary’s software helps companies set up a financial assistance fund and collect donations for that fund. Once the company has the capital, it can make a tax-advantaged charitable contribution to a nonprofit that works with Canary. The nonprofit will transfer the funds to the employee if the charitable contribution meets the requirements of federal tax laws, which require that the employee experienced an unexpected or unavoidable event that caused financial hardship, according to Schneider.
I thought if large employers have figured out how to do this, then we can develop a tech-first approach that makes this a ubiquitous practice for all employers.”
Employees can apply for the funding through Canary’s mobile-optimized application portal. There, they can explain the emergency event and upload the required documentation. The website is accessible to both English and Spanish speakers.
Employers can use Canary’s software to analyze anonymized data about their employees’ applications for financial assistance and learn how the emergency funds were allocated.
Canary’s Real-World Impact
The average grant facilitated by Canary last year was $848, according to the company.
Canary’s financial assistance was a massive help to a home health care worker, for example, who had to take time off work when she encountered pregnancy complications that required her to stay in bed, Schneider said. The financial assistance she received covered her rent payments, ensuring that she could deliver a healthy baby without getting evicted.
“She really credits that emergency payment with salvaging her health, her baby’s health and her family’s well-being,” Schneider said. “That’s a particularly challenging set of circumstances that she was experiencing, but it’s far less rare than one would imagine.”
Canary has facilitated financial aid programs for Visionworks, Clear Channel Outdoor and Harvard Business Publishing. Canary’s clients have workforces ranging from 150 employees to tens of thousands of employees and include sectors ranging from retail to financial services to healthcare.
While many companies are being careful with their spending these days, several businesses in the service industry are experiencing a tight labor market causing them to operate with skeleton crews and often compete for employees, Schneider said.
“Setting up an emergency fund can be a really important way to differentiate yourself and provide a very targeted service to the folks who need it most,” she said. “It’s really well-timed for this particular economic environment.”
Canary is a NYC-based company with a distributed team of 10 employees. The company recently received $2.85 million in funding to improve its platform and expand its presence in the marketplace.
