Study finds households need emergency funds November 2011
Would your household be able to come up with $2,000 in 30 days if the ‘rainy day’ did arrive? The National Bureau of Economic Research published a study in May 2011 that shows that 50% of Americans would struggle to come up with $2,000 in a pinch. This could be for an unanticipated car or home repair or a large medical bill. Only a quarter of Americans said they would be able to come up with the funds.
Approximately one quarter of Americans reported that they would certainly not be able to come up with such funds, and an additional 19% would do so by relying at least in part on pawning or selling possessions or taking payday loans.
This finding was more severe among those with low educational attainment and no financial education, families with children, those who suffered large wealth losses, and those who are unemployed. A sizable fraction of seemingly ‘middle class’ Americans also judged themselves to be financially fragile.
The study examined the coping methods people use to deal with shocks. While savings is used most often, relying on family and friends, using formal and alternative credit, increasing work hours, and selling items are used frequently to deal with emergencies. Most surveyed said they would need to use more than one method to come up with the funds.
What does this study mean for you and me? It means saving, even small amounts, is important for developing our own safety net to deal with emergencies. For ideas on ways to save, even small amounts, check out the University of Minnesota Extension website, www.extension.umn.edu .