Press Release

Pew Finds American Families Ill-Equipped for Financial Emergencies

Few households have sufficient liquid savings to deal with the unexpected

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WASHINGTON—Most American families lack the necessary cushion to cope with financial shocks, according to research from The Pew Charitable Trusts, which found that 33 percent of American families say they have no money they think of as savings, including 10 percent who have incomes of more than $100,000 a year.

The issue brief, “What Resources Do Families Have for Financial Emergencies?” is the second in a three-part series highlighting the financial situation of the 7,845 respondents to Pew’s recent survey of American family finances. This installment focuses on what resources Americans have as a first line of defense against the unexpected or to cover regular expenses when income does not suffice.

Although most families said people like themselves should have six-months-worth of savings, most have far less in reserve than the three to six months’ worth of expenses or income that financial experts recommend, with pronounced differences in savings and financial assets across racial and ethnic groups.

“Americans have very little saved in preparation for financial shocks, putting many families at risk,” said Clinton Key, a researcher for Pew’s financial security and mobility project. “Our analysis shows that most families will be faced with a significant and possibly destabilizing unexpected expense at some point. It’s critical for families to build emergency savings.”

The brief’s key findings:

  • More than three-quarters of Americans surveyed said they would use the money in checking and savings accounts to respond to an unexpected expense. However, 69 percent of respondents said they would use multiple resources, suggesting that many people realize they might not have enough liquid savings to cover the full cost of the shock. Additionally, 49 percent of respondents said they would use credit, and 36 percent would borrow money from another person.
  • Most households, across various demographic groups, have very little savings or assets that they could turn to in the event of a financial shock. Overall, the typical household cannot replace even one month of income with liquid savings, and its total financial assets are equivalent to only about six months of income. In fact, although most people said they would use liquid assets, 41 percent did not have enough liquid savings to cover the $2,000 cost of the typical household’s most expensive financial shock.
  • Liquid savings and financial assets differ not only by income, but also by race and age.
    • The typical household with less than $25,000 in income has enough savings to replace only six days of household income. By comparison, the typical household with income of more than $85,000 can replace 40 days of income through savings.
    • The typical white household has slightly more than one month’s income in liquid savings, compared with just 12 days for the typical Hispanic household and only five days for the typical African-American household. In fact, a quarter of black households would have less than $5 if they liquidated all of their financial assets, compared with $199 and $3,000 for the bottom 25 percent of Hispanic and white households, respectively.
    • The typical household in the silent generation (those born between 1928 and 1945) has nearly 29 months’ worth of income in financial assets, and the typical baby boomer (born between 1946 and 1964) household could use assets to replace slightly more than a year of income. Although this is substantially more than Generation Xers (born between 1965 and 1980) and millennials (born between 1981 and 1997), the resources of these older Americans represent a significant portion of the money they will live on in retirement and, as such, may not ensure financial well-being for these cohorts over the long run.
  • 80 percent of respondents have lower savings than they think similar households should have. The typical household would need to increase its liquid savings by over $9,000 to achieve its ideal savings level.

The third brief in Pew’s series will look at the public policy implications of Americans’ savings behavior. The first brief, released Oct. 28, 2015, examined the prevalence of financial shocks among U.S. households.

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The Pew Charitable Trusts is driven by the power of knowledge to solve today’s most challenging problems. Learn more at www.pewtrusts.org.

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