Many Americans have no emergency savings
Many Americans do not have any kind of savings
Scott G. Winterton, Deseret News
CEDAR HILLS — For Melody Hillam, financial problems centered on transportation.
If the family car broke down or if the tires had to be replaced, she had no backup plan. "We needed to have our car fixed," she says.
But there were no savings to pay for it.
If there is any comfort in not having an emergency fund, it’s comfort from not being the only people in that situation.
Bankrate's Financial Security Index survey in June, conducted by Princeton Survey Research Associates International, found that 28 percent of Americans have no emergency savings at all. Twenty-one percent had less than three months worth of savings to cover ordinary expenses.
The Corporation for Enterprise Development found that 43.1 percent of Americans do not have enough money saved to even subsist at the poverty level for three months if their income was suddenly cut off. For a large number of Americans, savings is minuscule or non-existent and they are one paycheck or one minor setback from financial disaster.
Will VanderToolen, director of counseling services at AAA Fair Credit Foundation in Salt Lake City, sees the results of this sort of money management all the time.
Instead of turning to savings like people used to, VanderToolen says people now turn to other sources.
"Credit cards have become people's emergency fund," he says. "They don't think they need money. 'That is what a credit card is for,' they say."
And that is how Hillam and her husband Todd in Cedar Hills handled their family's financial setbacks.
"Our emergency fund ended up being our credit card," she says. So when the car needed fixing, the plastic came out and paid the bill.
But the problem with credit cards, Hillam found, was it added an extra bill. "Our household budget was so tight already with our income," she says. "It became one more thing to pay and it was hard to find the money. And it seemed to grow and grow."
VanderToolen says the interest on credit cards and debt adds up. "If people could have saved the money they paid on interest, they would have quite a bit of money," he says.
But many people don't, and they don't put aside money either.
Her husband Todd receives quarterly bonuses from his work.
"In the past we would just think of something to spend it on," she says, "such as a jaunt to Park City. We treated it like it was extra cash."
VanderToolen says this mentality isn't uncommon. "It is easy for people to spend money on fast foods or a new ringtone or mp3 song download — and they all add up quickly," he says. "Yet it seems impossible for people to stick $10 into an emergency account. If people would look at and trim their spending habits — the little things we like to spend on fun things — they could put it into an emergency fund. But what is fun about that?"
VanderToolen says people could trim between 15 to 20 percent out of their budget without even missing it.
"Once that emergency hits," VanderToolen says, "you will wish you were stricter and set more aside. But you can't turn back the clock."