70 Million Americans Have No Emergency Savings

NEW YORK (MainStreet) — Nearly 70 million Americans have no emergency savings while nearly one in four people would run out of money in 30 days, according to a NeighborWorks America survey.

This lack of savings means millions of adults are faced with minimal options such as obtaining high-cost loans such as payday or title loans if an emergency occurs.

The survey also found that 40% of consumers say that their cash reserves would last as long as three months and 28% expect their emergency fund to hold them over for a year. In all, 68% of consumers say that they're setting money aside in case of a financial emergency.

"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, NeighborWorks America CEO. "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."

The survey also examined the savings goals of Americans. Retirement and buying a home are the top savings goals at 28% and 13%, respectively, with just 5% of consumers saying that they are currently saving to create a buffer in case of a financial emergency.

"Without a well-funded savings account, Americans are left with less than ideal resolution options when an unplanned event occurs," said Gail Cunningham, vice president of public relations for the National Foundation for Credit Counseling. "Taking money from a higher priority such as rent or utilities, borrowing from friends and family, charging the expense or high-interest loans can all trigger a negative spiral that aggravates an already shaky financial situation. People may feel they can't afford to save. I say they can't afford not to."

While the gap is larger for those who receive a lower income or salary, even 11% of people making $100,000 or more per year said that they had no emergency fund, while 52% of people earning less than $40,000 said that they had no such reserve. Even middle class earners are financially vulnerable with 24% of adults with an income between $40,00 and 59,000 lacking an emergency fund.

"In today's marketplace, everyone, including those with limited incomes, can set aside some savings for emergencies and work to achieve other financial goals," said Fitzgerald. "We are seeing great results for consumers who use a financial coach to help them start saving, reduce debt and work toward financial goals."

NeighborWorks is a non-profit group which offers training and impact evaluation services for nonprofit professionals to develop and scale financial capability programs in their communities.

"Our aim in 2014 is to expand our financial capability program by offering training to more coaches in order to reach more individuals," she said. "Saving for emergencies is a critical component of being financially stable. Unexpected medical bills, major household repairs and even car repairs could significantly hurt a family's long term future."

Most financial planners recommend a minimum of three to six months of living expenses in cash or cash-equivalents such as a money market, said Daniel Beckerman, a Certified Financial Planner in Oakhurst, N.J.

Consumers who want to start a rainy day fund can put their savings in a high-yield money market account or online banking account, said Kimberly Foss, president of Empyrion Wealth Management in Roseville, Calif. One option is to consider SmartyPig.com, an online "piggy bank" which can help people accomplish their savings goals.

"There are no fees and it is an FDIC-insured savings account," she said.

Missing payments has serious consequences for consumers, said Michael Cleary, group executive vice president of consumer banking for RBS Citizens Financial Group in Providence, Rhode Island.

"Consumers should take advantage of the tools available to them to help pay bills on-time," he said. "Technology has made it easier. People can now use their mobile devices to quickly make a payment anytime, anywhere or set up online bill pay through a bank account so that payments are made automatically on specific days each month. Consumers can also set up e-bills and get alerts when bills are due."

When consumers lack the funds to pay their bills they can simply shift the due date to align with monthly paychecks, Cleary said.

Not paying bills on-time has both short and long-term consequences that impact a consumer's ability to borrow money in the future. The most immediate consequence is incurring late fees, which can add up over time and increase your debt obligation and lengthen the time it takes to pay off bills in full.

Late payments can also affect a consumer's credit score. If a bill is 90 days or more late, there can be a measurable impact on your credit and the information remains on your credit report for seven years.

"Poor credit scores hurt your chances of securing loans and other financing in the future," he said.

Consumers who can not avoid making late payments should instead discuss with their utility company or medical institution the possibility of establishing a reduced monthly payment or payment plan.

"This is far better than avoiding the bill and incurring more fees and long-term damage to your credit," Cleary said.

--Written by Ellen Chang for MainStreet

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