My 18 year-old daughter is a full-time college freshman and a part-time employee at the mall. She has been working 15-20 hours per week in minimum wage jobs for the past two years. She drives a paid for 11-year old Jeep and owns no real estate. She is an avid consumer, movie-goer, and Starbucks aficionado, and shops at the mall regularly with her own earnings.
Apparently she is a member of the financial elite.
Why? Because my daughter has amassed a savings account totaling just over $2,700 from her own earnings.
According to a recent survey by the National Bureau of Economic Research, 75% of Americans surveyed could not fund a $2,000 emergency expense….. even if they had 30 days to come up with the funds from any source.
I find this about the scariest financial statistic since the Great Depression.
A basic rule of thumb used by financial folks is that everyone should keep an emergency fund of a minimum of three months of living expenses. For most families that should be an amount between $10,000-$25,000.
I don’t know a single person who would do any of the following.
- Live in a home on the edge of a cliff
- Habitually operate their vehicle on gas fumes
- Own a water tank with only one gallon of capacity
- Leave their refrigerator empty other than two eggs and an artichoke
So why, why, why do people manage their financial lives with zip, zero, nada margin for error? I can understand that many Americans are struggling these days, but is this the case even for those who own a $400,000 home , $20,000 vehicle or a $5,000 entertainment system?
It is my (unproven) theory that those who have experienced war, famine, floods, invasion, economic depression, and other dire emergencies, are more likely to be prepared for emergencies (financial and otherwise) than those who have not. The vast majority of native born Americans of the current generation have simply never experienced an emergency of this magnitude, so the need for preparedness simply has not been burned into their brains’ hard drive. And if something should go wrong, there is a subconscious hope/expectation that either Uncle Sam or whomever can be blamed for the calamity will bail them out.
I believe that if in fact 75% of American households do lack the most minimal financial cushion, that this represents a huge systemic risk to our economy, and should lead to serious discussions and financial education for all. Before buying the next I-gadget, pair of jeans, or meal at a restaurant, how about socking away $25 per paycheck towards that emergency fund?
If that fails, you might see my daughter for an emergency loan.
Source:
Many Don’t Have $2,000 for a Rainy Day (CNN Money)
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