Families with working family heads under age 65, fewer than one quarter had more than three months of their family income emergency-type, liquid savings in 2019.
Indeed, even when the liquid savings threshold was reduced to 75%of 3 months of family income, the picture did not much improve, The Employee Benefit Research Institute (EBRI) finds, and just over a quarter of families with working family heads under age 65 had liquid savings in excess of this amount.
The survey, “Emergency Savings: What Do Workers Have Available in Liquid Savings? How Long Can They Afford a Loss of Income?” reports that the median family with a working head had less than one month of income in liquid savings available.
Further, even families with incomes in the highest quartile aren’t in much better shape: their liquid savings stands at one and three-quarters months of income. And the presence of a defined contribution plan did little to improve the situation, with just over one-quarter (25.3%) of families with a DC plan participant head in 2019 having more than the equivalent of three months of their income in liquid savings, compared with 20.3% of the families whose head was not a DC plan participant.
The relatively low percentage of families who had liquid savings held regardless of the family head’s age or race/ethnicity. As such, the need for emergency savings help is not limited to just families with low incomes or with younger heads.
Long-term consequences
The ability to cover short-term financial needs can have long-term financial consequences, so establishing an emergency savings fund to protect against financial emergencies is important to overall financial health, EBRI adds.
However, when looking at what families have in liquid savings that are immediately accessible, the results appear troubling.
“Given the low percentage of families with sufficient savings to cover a loss of income for any extended period, it is understandable that more employers are seeking to address the overall financial wellness of American workers,” Craig Copeland, EBRI Senior Research Associate and author of the report, said in a statement. “Employer interest in emergency savings programs lies both in the direct potential benefit to workers, as well as a benefit to employers in the form of higher employee satisfaction. From a public policy perspective, addressing short-term savings needs as a separate financial issue could lead to better long-term results, as emergency savings—distinct from retirement savings—could help preserve assets in DC plans that otherwise might be tapped for emergencies.”
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SEE ALSO:
- Employees Game for Payroll-Deducted Emergency Savings
- Vestwell Adds Its Spin on Rainy Day Savings
- Employees Amplify Concerns Over Financial Emergency Impacts
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
