How Do Families Cope With Financial Shocks?

The role of emergency savings in family financial security


This brief is the first in a series of three that explore how financial shocks and emergency savings are related to families’ financial well-being. Savings may help households cope with unexpected expenses and preserve wealth over the long run. Understanding the frequency and impact of events that might strain budgets, and the resources families have to cope with them, is crucial to building policies that promote financial health.

Most households have a set of relatively fixed expenses that they expect to pay each month, and a financial shock—such as a car repair or a loss of income from fluctuating work hours or a pay cut—can make meeting those obligations much more difficult. Over the course of a year, households of all types are likely to experience  such shocks, which affect every aspect of family balance sheets—income, expenses, and wealth—and are at the center of American households’ struggle to achieve and maintain financial security.

This new issue brief examines the impact of financial shocks on families’ financial well-being and finds that, for many households, financial vulnerability is only one unexpected expense away.

Download the issue brief. (PDF)

Key Findings

  • 60% of households experienced a financial shock in the past 12 months.

    A third of families had two or more types of shocks. People of all ages and races and on every rung of the income ladder experience financial setbacks at similar rates.

  • $2,000 was the median cost of households’ most expensive shock.

    The median household spent half a month of income on its most expensive shock.

  • 55% of households struggled to “make ends meet” after their most expensive financial shocks.

    Nearly 50 percent of families had not recovered from their most expensive shocks at the time of the survey, which for most was at least six months later.

  • 47% of households that experienced a financial shock also had serious financial shortfalls in the past 12 months.

    Only 16 percent of households with no financial shock also had serious financial shortfalls in the past 12 months.

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