Around 27% of households, or 55 million adults, have absolutely zero savings to their name according to one study from Bankrate. The lack of savings is even impacting the highest earning households in the US, as 25% of those also have no emergency savings. Yes, that is zero dollars for so called higher earners. As we continue to write about, so many people (maybe even more higher earners) put out fake fronts and images, have little true “wealth”, quite frankly lie, and live on the edge as well.
This lack of savings is even though the economy and job market are very strong, incomes are rising per the latest August 2018 jobs report, and every American that has any skills is in high demand as there are more jobs than people to work them. That means they are literally one paycheck away from not being able to pay their bills, buy food, pay for a car repair, pay rent, or cover their medical needs. This lack of savings is truly a crisis that our nation just can’t ever seem to overcome.
This recent Bankrate poll from early-2018 (they run this survey annually) just one of the many that continue to come out. There is also a survey from SSR which supports this. Year after year there continues to be polls and surveys that show what a poor job Americans do at saving money. Even though the recession ended about 8 years ago, people still are unwilling to save for the next downturn in the economy. Or this lack of will to save is putting them at tremendous risk of the next emergency that their family may face.
Not only do roughly 28% of households have zero dollars saved to cover an emergency expense, but according to the Bankrate survey about 22% of other families have less than 3 months. So while they may be able to survive for a matter of weeks during a crisis, three months is still not much of a buffer.
Higher earners do not save either. Personally I always find this comical. So many people lie, put on shows, give impression they are doing well, etc. and generally it is always fake. People tend to talk but do not have the money or true wealth to support it. As SSR and Bankrate show, they do not even have any emergency savings…much less have other assets/investments/etc. to their name. If you are lower to middle income, and have any savings/investments to your name, then note you may very well be doing better financially than a sold called higher earner.
Importance of emergency savings
There are literally thousands of things that can throw off a family’s finances. It can include things such as an unexpected car repair bill or medical issue. In fact, according to NerdWallet about 650,000 families go bankrupt each year due to health care bills. Some of these could have been prevented if the patient had adequate savings. With the cost of healthcare continuing to increase, that challenge can become even worse.
Other hardships are caused by a roommate unexpectedly leaving, divorce, lawsuits, air conditioner breaking, and employment issues. Just look at the recent turbulence in the economy due to the United Kingdom leaving the EU, and even something as unexpected as that could cause an employer to cut back. This will then impact a family’s income and ability to pay their bills on time.
If a household has adequate savings and a crisis comes up, they can pay that bill using money on hand. Otherwise their options are limited, and they not very good. Without savings many families turn to personal or home equity loans, credit cards, or even worse, such as payday lenders. All of these are poor alternatives to having adequate emergency savings on hand.
With over ¼ families not having money in the bank to pay these bills, they are literally living paycheck to paycheck. How would someone even think of retiring if they can’t even save today, when the economy is strong? What will happen when the next recession hits, as the current economic expansion has been going on for about 9 years as of 2018, and is therefore a historically long expansion.
If you are willing to save money, all of these challenges are more manageable. Having some cash on hand allows the family to be more flexible in how they deal with a crisis. They can use that money, or the savings allow them to do thing such as maybe borrow some short term debt and then immediately pay it off. Savings allow people to fix unexpected car repairs so they do not miss work, and maybe loss a job as a result. There are countless other examples too.
Savings also empower people and help them reduce stress. Imagine how those 25-50% of families feel living paycheck to paycheck, and then a crisis comes up? They must be so stressed out about what they are going to do. Having adequate emergency savings also helps in that capacity.
The good news it is never too late to start. Just cut back a few dollars here and there each week, and dump that money into an emergency account. Then watch it grow. That will build confidence, and each month it gets a little easier. Find our tips on how to save and budget properly, which come right from our blog.