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Rainy-Day Emergency Funds
At some point, the majority of households (regardless of life stage) will experience an emergency—such as a job loss, a repair, or an unanticipated medical expense—that brings with it an unplanned expense. An emergency often occurs just when a household is financially focusing on some other priority; the household priority might be to buy a home, fund a child's education (or pay off student-loan debt), or save for retirement. Being prepared to weather a small storm can be the difference between the household's solvency and survival and its bankruptcy and homelessness.
In 1994, saving for a rainy-day emergency was a goal for one-half of US households. The incidence of households with this savings goal peaked in 2002 at 55% but has been in decline since: In 2014, only two in five households report saving for a rainy-day emergency as a financial goal. The rising cost of living, coupled with stagnating wages for the majority of households, and the slow economic recovery have done little to prompt all but roughly one in ten households to view rainy-day-emergency savings as their most important goal.
One of the most responsible and functional tasks that many advisors strongly suggest that every household can do to lift itself out of debt and counter financial vulnerability is to have a savings account earmarked for emergencies. Roughly two-thirds of households with a rainy-day-emergency savings goal have a savings account. Households whose primary goal is to save for an emergency have half the mean amount that all US households have in a savings account ($9K versus $17K).
Many households—roughly one-quarter of all households and one-third of households with a primary goal of saving for an emergency—have difficulty in making ends meet each month. Because households with an emergency-savings goal are more likely than all households to want government-insured products, depositories are best positioned to help these households save. For example, a low-cost-of-entry, "pay-yourself-first" savings account with an automatic, biweekly transfer from a checking account would appeal to households whose most important goal is to save for a rainy-day emergency to help protect them from the cost of a traumatic event. Institutions that suggest and provide the account could benefit from positive feedback.
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