You may have seen this article last week in the Wall Street Journal that detailed the current status of Americans and their emergency savings. I probably don’t have to describe to you the article’s tone. Your intuition tells you it was filled with negative statistics.
The study from Bankrate.com showed that:
26% of Americans have no emergency savings…
66% of Americans don’t have the recommended six months of expenses saved…
Those with enough saved to cover expenses for three months shrank to 40% in 2014, compared to 45% in 2013 and…
Only 46% of those earning $75,000 or above have six months of expenses saved.
That last one is especially disturbing. $75,000 is a fine yearly income. That equates to 300k earned in 4 years time, assuming no raises or bonuses. Throw a tax refund or two in there and you are telling me 54% of the people in this situation can’t save six months of expenses in four years? That’s fascinating.
Of particular note, guess who the most likely savers are turning out to be according to the study?
Young people, ages 18-30 were more likely to have five months of expenses saved. Shocked by that?
Why Are Young People Saving?
The takeaway from the piece was that young people learned a great many lessons from the most recent recession. Of course this demographic could have either experienced the recession first hand or watched as their parents lived through it. Either way, they are being moved to save, perhaps in ways like never before.
Contrast this with those in the 30-49 age demographic, who the study points out are most likely to have no emergency fund. Greg McBride, Bankrate.com’s chief financial analyst notes that is particular alarming “because those are the people with a house, two cars and a dog…” In other words, the people with the most to gain (or lose depending on your perspective) aren’t adequately prepared for an emergency.
Wonder why that is? Maybe it’s because they’ve overextended themselves with the house, two cars and a dog. That can easily happen. Families get so intent on living the American dream they will stop at nothing to achieve that lifestyle.
There is nothing wrong with having nice things. I must ask though, at what cost? These families are mortgaging the future so they can find pleasure in the present.
It will be tougher to convince 30-49 year olds to depart from their all-thrill-no-save lifestyle. But if the 18-30 demographic can develop a penchant for saving, think how that might revolutionize personal finance for the next several generations. As they model saving their children will pick up on it. Hopefully the kids will see the value in their parent’s wise money management practices and reproduce it in their own lives.
In another 20+ years, an America where 90%+ of people had six months of emergency cash on hand would be a vastly different landscape.
On A Positive Note
Another way to read this study is that 74% of Americans have something saved for an emergency. That’s at least a start. We know emergencies are going to come sooner or later. Even if you simply have $1,000 saved it will go a long way in stamping out those fires.
If you are in the 26%-no-emergency-savings-crowd get started today. Develop some personal spending discipline. Sell some stuff, cut back on unneeded expenses, or get a short-term, part-time job. There are plenty of ways to build an emergency fund.
Do anything (short of compromising your integrity or the law) to get a financial cushion. You can’t imagine the peace that comes knowing there are cash reserves set aside waiting to fill a need.
Why do you think young people are saving more than the 30-49 year old demographic? Is lifestyle inflation only to blame? Where you live, would a salary of 75k/yr. be enough to eventually save six months of expenses in four years? When and for what did you last use your emergency fund?
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