The need for emergency savings

With the opening of our Safety Net Savings program, we want to take this month to focus in on savings, and how important it is in establishing stability and avoiding financial catastrophe. Just yesterday, I caught myself saying the type of phrase that leads directly into an emergency: "I don't foresee any trouble on the horizon." But what would happen if you ran into a large medical expense? What would happen if you lost your job? What if your car breaks down? What if etc? It might be easy for some of us to say that everything would be fine, but statistically, approximately half of us have insufficient savings to weather the storm(3). So when those emergencies inevitably occur, what options do our clients have?

If for some reason you don't believe how hard it can be, we dare you to test your financial survival skills! 

While it would be great to have a support system of family and friends that is both willing and able to help, that support is a luxury that many people don't have. Instead, many turn to other sources of liquid assets, such as personal savings, early withdrawal from investments, and the sale or pawn of their possessions. Others find their way into debt, relying on credit cards, or payday and title loans, to keep them afloat. Those who do have assets might find their way through unemployment through a mortgage refinance or a home equity line of credit, jeopardizing what security they do have(3). Of those who do take out payday loans, 16% are forced to do so because of an unexpected expense(1). Those of you who have seen enough clients will know by now that the bills accompanying the crisis often go unpaid, ending up in collections where they drag down credit scores and haunt clients for years to come.

As a rule of thumb, emergency savings accounts would ideally have enough money for a family to survive for three months without a source of income. In Texas, the roughly 27% of families in asset poverty are two to three times less likely to weather the rainy days without incurring some form of debt. It's easy to see the negative effects of not having savings, but there’s also a positive correlation between savings and generational income—if the parents in a low-income household had high savings, there’s only a 33% chance that the child will remain in the bottom quartile, as opposed to the 50% of children who come from households with low savings(3). 

Knowing that savings can lead to greater financial stability, as well as safeguard against potential disaster, we're hoping all coaches will encourage their clients to save for the unexpected, and take a look at what it takes to set up an account. Just as we set our goals for an unknown future, we still need to take those first steps toward progress. We all need a safety net sometimes!

Sources:

1. http://www.pewstates.org/uploadedFiles/PCS_Assets/2012/Pew_Payday_Lending_Report.pdf
2. http://www.pewstates.org/uploadedFiles/PCS_Assets/2013/EMP_Report_Hard_Choices_Navigating_the_Economic_Shock_of_Unemployment.pdf
3. http://www.forabettertexas.org/images/EO_2012_10_RE_Savings.pdf