The majority of Americans live paycheck to paycheck and are just one unexpected emergency away from being flat broke, a new survey finds.
A survey released Wednesday by finance website Bankrate found that only 37% of Americans are financially prepared to handle an emergency situation, whether it is a lost job, accident, illness, or home and car repair. An estimated 63% of people in the United States lack an emergency savings fund.
Bankrate surveyed 1,000 people last year and asked respondents how they would acquire funds in the case of an emergency without a savings account dedicated to such an event. Of the total, 23% said they would reduce their spendings, 15% said they would borrow from friends and family and 15% said they would turn to credit cards.
Stephen Brobeck, executive director of the Consumer Federation of America, explained:
“The survey shows that a very significant minority of American households apparently don’t have the resources to pay for an unexpected expense of around $1,000.”
The importance of having an emergency savings cannot be emphasized enough. The survey found that four out of 10 respondents or their immediate family members were faced with an unforeseen expense last year. Only 57% of those people were able to handle the situation and regain their financial stability.
While the amount for an emergency savings will differ from person to person depending on their lifestyle, monthly costs, income and so forth, a general rule of thumb is to put away at least three to six months’ worth of expenses in an easy-to-access interest-earning account, according to Wells Fargo.
Though it seems obvious that people should be saving, many are not. According to Andrew Meadows, a San Francisco-based producer of “Broken Eggs,” a documentary about retirement, millions of Americans are struggling with a crippling amount of student loans, medical bills and other debts.
Savings were predominantly seen among those with higher income and education, according to Bankrate. It was found that 46% of households that made $75,000 or more and 52% of college graduates had just enough savings to cover a $500 car repair or $1,000 emergency room visit.
On the bright side, many of the respondents were willing to cut back on expenses to budget for their emergency savings. Of the total, 58% were very or somewhat likely to cut back on eating out at restaurants, 46% willing to skimp on their cable, 41% likely to give up their coffee, 39% willing to find a less costly cellular plan and 35% willing to abstain from alcohol.