Emergency savings: Status check

Despite improving economic prospects, many Americans remain financially fragile.

A new Bankrate survey finds that when Americans are asked how they’d pay an emergency expense of $1000 or more, just 44% say they would do so from savings.? That’s up from 43% a year ago and matches the 2022 level.

Some 22% say they’d pay the expense with a credit card and pay it off over time. This is at a time when credit card interest rates are the highest on record. The Bankrate average is 20.74%. Those who lack sufficient savings only encumber their personal finances further by taking on debt.

About 7 in 10 Americans say they’re saving less because of inflation. This is a missed opportunity because returns on savings are more generous than seen in many years, which is the positive side of the high interest rate equation.

Americans are feeling better about the U.S. economy which has demonstrated more resilience and strength over the past year than expected. But the sentiment is divided along political lines, with Democrats feeling more confident and Republicans feeling less so, according to the University of Michigan.

Despite worries about a recession following the worst outbreak of inflation in decades and an aggressive interest rate raising campaign by the Federal Reserve, the nation’s unemployment rate remains below 4%. Inflation is coming down, but prices remain elevated compared to pre-pandemic levels.

The negative consequences of insufficient emergency savings can also be seen from the perspective of another aspect of the survey. When asked how a sudden loss in income or employment would affect their finances, nearly two-thirds of respondents said they’re worried they would not be able to cover their immediate living expenses over the following month.

On the other hand, more than one-third of those responding said they are not too worried, or not worried at all about paying for living expenses after a sudden loss of income or employment.

What to know about Americans and their emergency savings (or lack of it):

To recap:

-Most Americans lack sufficient emergency savings. Just 44% say they can afford to pay an emergency expense of $1000 or more from savings.

-Over a-third of adults say they would borrow in some fashion, either by using a credit card, taking a personal loan or rely on friends or family.?

-Members of Gen Z (age 18-27) are least likely to pay from savings. Baby boomers (age 60-78) are most likely to tap savings for a sudden expense of this type.

-To protect yourself and your household against the inevitable sudden significant expense, dedicate an insured savings account funded through direct deposit and seek one providing a high yield.? Emergency savings must be liquid, or easily attainable, to provide the peace of mind and usefulness required.

Read more about our survey and consider taking steps to make your finances bulletproof when it comes to the inevitable sudden expense, like a car repair, emergency room visit, or an interruption in employment or income.

?Please share your thoughts on the subject in the comments section below.

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