Since the 2008 crash and recession that followed, Americans saw a very real need to have a cushion of savings in case things went south again. It was an economic wake-up call, and many were saving more than they had over the last seven years. Even so, nearly a quarter of the population still has no emergency savings, according to a recent survey.
Leading up to current events, Americans were feeling more job security and reported higher net worth, with women reporting the highest feelings of financial security in two years. But then, in 2020 the world woke up one day to find we're living in strange and different times. We went from a historic, prosperous market to an economic shutdown overnight. Since then we’ve been reeling in the uncertainty of what comes next, and how long it will last.
In such a climate, it’s no wonder, whether unemployed or still working, many Americans are looking for extra funds during the coronavirus pandemic. About 14 percent of those with retirement savings have taken money from accounts such as 401(k)s and individual retirement accounts to meet that need. Another 13 percent of those with savings say they’re planning to make use of their retirement funds.
Emergency funds are a very important component to a healthy financial life, and having that safety net sitting in an account somewhere will give you peace of mind, knowing that should something unexpected happen that requires the use of savings to get you through a number of months, you have it readily available.
To avoid unforeseen emergencies crashing your personal finances, some financial professionals will recommend at least three months’ worth of expenses in an emergency fund, but since abundance is the only guarantee of survival, many will go as far as saying you should have six months’ worth. And if this pandemic has taught us anything, it’s that three months is hardly enough.
Building a fund takes time and changes as we age. The aforementioned survey by Bankrate.com shows that although they are approaching retirement, 32 percent of those between the ages of 53 to 62 had no emergency savings, the highest among the different age groups. Many of these Baby Boomers may have lost their savings in the economic downturn of 2008 or faced long-term unemployment. Those older than age 63 reported the lowest likelihood of empty savings and 44 percent of them had enough savings to cover at least 6 months’ worth of expenses.
Surprisingly, the youngest Millennials between the ages of 18 to 26 exhibited strong saving habits. Though many carry student loan debts, they are much less likely to rack up credit card debt or auto loans. They buy fewer things, and this might be because they saw their parents and older siblings experience the recession.
Also encouraging are the statistics showing that credit card debt has hardly seen any increase during the pandemic, and this would seem to indicate that folks aren’t resorting to debt as a solution. Despite unemployment hitting record highs throughout America, the average amount of individual debt has consistently declined since the onset of the pandemic.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable-- we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC