“Smoke ’em if you got ’em,” the saying goes, and many Americans are doing just that when it comes to emergency funds.
Already, 30% of Americans have tapped into their emergency fund due to the economic crisis brought on by the coronavirus pandemic, according to a recent NerdWallet survey conducted online by The Harris Poll from April 8-10.
The percentage is significantly higher for Millennials, perhaps the most likely generation to be put out of work by the crisis. The NerdWallet survey found 45% of Millennials have tapped their emergency fund, compared to 36% of Gen Z, 32% of Gen X and 16% of Boomers.
The Labor Department announcing last Thursday that another 4.4 million Americans filed for unemployment benefits last week, bringing the 5-week total to 26.4 million, means roughly one-sixth of the U.S. labor force is unemployed. Unemployment + global pandemic? Yeah, that sounds like an appropriate time to tap that emergency fund.
“The whole purpose for the emergency fund is to use it when there’s an emergency,” Dana Menard, CFP, founder of Twin Cities Wealth Strategies Inc. in Minnesota told NerdWallet. “It’s crazy to think of saving up for an emergency, and then not utilizing it at all, and going back to the old habits of pulling out the credit card or anything along those lines that could be more detrimental.”
Unfortunately, many Americans don’t have an emergency fund to tap. According to the NerdWallet survey, almost 1 in 5 Americans (18%) had no emergency fund—and that’s being conservative. Other recent surveys have found much higher percentages of Americans lacking an emergency fund. Consider:
- A recent Bankrate survey found that if faced with a $1,000 unplanned expense—like a trip to the emergency room or a car repair—only 41% would be able to cover the unexpected cost using savings and 28% have no emergency savings at all.
- According to the Federal Reserve, half of American families report having an emergency fund, and only 20% of American families had access to liquid savings of more than three months of their family income in the case of an emergency. The Federal Reserve also found that 40% of American adults can’t afford a $400 emergency expense such as a car repair or replacing a broken appliance.
- John Hancock’s most recent Financial Stress Survey showed a quarter of respondents had no emergency savings at all.
Even before the COVID-19 outbreak put a spotlight on Americans’ lack of emergency fund preparedness, employers had increasingly been turning to financial wellness programs to provide assistance with financial literacy and helping employees start or build an emergency fund. Without an emergency fund, after all, most workers are in no position to be able to contribute to a 401k. The sooner they can get on sound financial footing, the sooner they can begin contributing in earnest to that 401k.
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