Personal finance experts recommend each household has an emergency savings fund in case they run into unexpected or difficult circumstances. This should be separate from other savings plans, like a pension, investments, or other funds for retirement or life events.
The Navy Federal Credit Union currently recommends households have an emergency fund of at least $11,000, depending on their household income and financial commitments.
However, surveys show that most consumers are not even close to that goal. A survey by Bankrate shows that over 51% of Americans have less than three months’ worth of savings.
Another survey found that 70% of millennials and nearly 40% of all consumers in the US are currently living paycheck to paycheck. It also found that 53% of those in higher-income households – those earning between $50,000 and $100,000 – had no emergency fund.
Living paycheck to paycheck is particularly problematic, as unemployment and other financial emergencies can happen with no warning, and many consumers don’t have the funds for this.
The median emergency fund in America is currently around $5,000. Older workers have the most in savings, but most younger workers have little or no savings to fall back on.
And, the pandemic has made this problem worse. “Just 1 in 6 households report having more emergency savings now than prior to the pandemic, and those that did tend to be from higher-income households, with fully-funded emergency savings,” says Greg McBride, a chief financial analyst at Bankrate.com.
According to the US Bureau of Labor Statistics, between January 2017 and December 2019, approximately 2.7 million workers lost their jobs after at least three years of employment.
The pandemic has greatly increased this number, and the Labor Department statistics show that 2,458,419 people are drawing unemployment benefits, which is an increase of 510,808 from the previous week.