Another bell has tolled for the financial preparedness of U.S. residents, as a recent study has found that many Americans don't have any money saved for emergencies.
NeighborWorks America, a nonprofit affordable housing advocacy, recently released the results of a telephone survey of 1,000 Americans that found that nearly 70 million U.S. residents do not have the savings necessary to support themselves should an unexpected crisis occur. Even those who do have emergency savings fall short, as 53 million or 22 percent of U.S. residents don't have enough saved to cover their expenses for more than a month.
Only 28 percent of Americans believe their emergency savings could last them a year, while 40 percent said their funds could last three months, the average time such savings should typically last.
These shortcomings contribute further evidence that Americans need to improve their financial literacy and money management skills. Few K-12 schools offer personal finance education, and many consumers do understand their credit reports, how to budget or the importance of saving more and spending less. Given these points, it is not surprising that only 68 percent of Americans are setting aside money to offset a financial crisis.
Emergency savings is a lesser priority
Although consumers are not saving adequately for emergencies, many do have some form of savings. However, other expenses tend to take priority, according to the survey results. In addition to figuring out whether Americans save for emergencies, NeighborWorks America also examined the reasons why consumers save. The top saving goals were retirement (28 percent) and buying a home (13 percent). However, only 5 percent of respondents said that their goal was to have financial security in case of an emergency.
The survey also found a connection to economic status, as those with lower income levels were more likely to lack an emergency fund. Fifty-two percent of people making less than $40,000 annually said they didn't have such savings, while only 11 percent of Americans making $100,000 or more annually reported the same. Additionally, 24 percent of consumers in the middle class - earning between $40,000 and $59,000 annually - have emergency savings.
African Americans and Hispanic adults are also more at risk for lacking an emergency fund. Of the 23 percent of consumers that said they didn't have savings, 43 percent were African American and 39 percent were Hispanics.
There is a need for aid and education
The deficiency of emergency savings among Americans is disparaging in regard to U.S. financial preparedness, but that doesn't mean there isn't an chance to reverse the trend.
"These data have to light a fire under all of us who want to see Americans better able to withstand a financial crisis, especially a recession as devastating as the one we're climbing out of now," said Eileen Fitzgerald, CEO of NeighborWorks America. "Our survey underscores the need to provide better tools and information for people to manage the money they do have in order to build a strong financial base."
Not only does this information present another chance for credit unions to expand their community outreach efforts, but it also is indicative of what services need to be directed toward members. By emphasizing the need for emergency savings and presenting account options to help with ensuring financial stability in the event of a crisis, credit unions can be an integral part of expanding financial literacy.
"In today's marketplace, everyone, including those with limited incomes, can set aside some savings for emergencies and work to achieve other financial goals," Fitzgerald said.