An astonishing amount of Americans have zero cash savings. Because of these zero cash savings, many consumers are turning to payday loans, credit cards and retirement accounts to pay for things like financial emergencies, day-to-day expenses and unforeseen events.
And this won’t bode well for the financial wealth of households across the United States today.
Bankrate.com released the results of a new survey of 1,000 American adults on Wednesday. Commissioned by Prince Survey Research Associates International, more than one-quarter (28 percent) do not have any savings to cover an unforeseen event or an emergency.
This translates to the fact that 66 million Americans do not have any savings whatsoever.
Researchers note that 18 percent of survey participants reported to having savings for less than three months, while 16 percent had enough savings for at most five months. Just 28 percent conceded to having enough money set aside to cover their lifestyle for six months or longer.
“Expenses grow faster than many Americans can save during the home-buying, family-raising years,” said Bankrate.com chief financial analyst Greg McBride in a statement. “Accumulating emergency savings requires establishing the habit.”
Money experts say this is dangerous because households do not have any financial buffers.
If someone in the household needs braces or if the refrigerator breaks down or the breadwinner loses their job then they are in pecuniary trouble. When they don’t have the funds then they take out same day loans, which can then send them deeper into debt because of high interest rates and other fees.
A growing number of Americans are facing obstacles to savings, too, the survey authors note. Everything from medical debt to student loans, many households don’t have any room to make cuts or create a rainy day fund.
“People do not have a buffer to shield themselves. If they are hit by a shock – the car breaks down, the children need braces – they wouldn’t be able to face the shock,” Annamaria Lusardi, professor of economics at the George Washington University School of Business Lusardi and academic director of the Global Financial Literacy Excellence Center, told Bankrate.com.
“Or they would have to rely on charging more on their credit cards, or take a payday loan, or take a loan out of their retirement accounts. And these, I think, have real consequences.”
The Bankrate survey further revealed that fewer consumers have been facing financial distress as of late. The website’s Financial Security Index (FSI) has remained in positive territory for 25 consecutive months. This month, the FSI chart reached 103.2, a positive indication.
The website concludes that the paucity of emergency savings and turning to the likes of payday loans is becoming a national problem. The savings rate in the U.S. is around four or five
Ostensibly, the key problems raised by the website is that households’ financial responsibilities have increased in recent years, whether it’s for healthcare, retirement, college or the cost of living. It’s understandable that there may not be enough for a rainy day fund. With that being said, people have to reverse course and live in the long run as well as the short run, the website says.