Losing a Job Means Hardship for 40% of Americans


NEW YORK (MainStreet) — Losing a job means financial hardship for 40% of Americans, because they lack having an adequate emergency savings fund, according to a recent Gallup poll.

Four out of ten employees said their current savings would only pay their bills for one month. Employees remain overwhelmingly optimistic with only 16% who believe they would lose their job, the poll said.

Consumers should have three to six months of monthly expenses in a savings account or money market fund, said Kimberly Clouse, chief client advocate at Covestor, an online marketplace for investing with offices in Boston and London.

"Everyone should create an emergency fund, and it's even more critical for entrepreneurs and other earners who may not have a steady income," she said. "An emergency fund allows you to use cash to pay for those random expenses or emergencies that arise in your financial life, instead of creating more debt or tapping into long-term investments. You want to be able to tap into these funds easily, but you don't want to tap them unless you really need to."

The pressure to find a job increases for the majority of Americans since 14% of people said they only have enough savings for one week while 29% said their savings would last one month. While 26% of respondents said their savings would last four months, only a small minority or 17% had enough money to be out of work for one year, the poll said.

Some people do not have an emergency savings fund, because they do not think they could lose their job. The poll found that only 5% of workers who say they are "very" likely while 11% say they are "fairly" likely to lose their job during the next 12 months. In 2010, that percentage totaled 21%, which was a year of high unemployment, but has averaged 14% since Gallup first posed the question in 1975.

The majority of employees said their jobs are safe with 34% of respondents who said they are "not too likely" and 50% said they are "not at all likely" to get laid off during the next year.

Unemployment affects more people who under the age of 35 with six in ten workers who said their savings would last only one month or less before experiencing hardship, compared with 39% of workers aged 35 to 54 and 25% of workers aged 55 and older who have enough savings.

While many people are loath to keep their rainy day fund in a savings account because interest rates remain low, having access to your money quickly can be advantageous if you lose your job unexpectedly, said Clouse.

"From a purely investing standpoint, investors may be reluctant to hold cash in a low-rate environment when purchasing power can be eroded by inflation," she said. "However, cash has other uses aside from income and gives investors a reserve of buying power and additional flexibility."

Although the economy has rebounded, stashing away extra cash is never a foolhardy decision.

"No one can predict the future with any degree of accuracy, so why would a person choose to gamble with his or her financial future by not having an adequate savings account to sustain them?," said Gail Cunningham, spokesperson for the National Foundation for Credit Counseling. "Even if a person feels as though their job is secure, it's usually the unexpected that usually trips us up. Time is money's best friend. No one has ever regretted saving too much. Start today planning for your financial unknown."

--Written by Ellen Chang for MainStreet

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