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How much in the piggy bank? Emergency savings and
American families
Losing a job can be financially catastrophic – especially for
families who lack the cushion to absorb a major loss in income.
Unfortunately, too many American households are ill-prepared to
weather any financial shock, whether it’s a job loss, a serious illness or
even an accident that sidelines the family car.
FACT: A growing number of American
households lack adequate emergency
savings.
CFED’s research finds that as many as 44 percent of American
households don’t have the cash to live three months at the barest
level of subsistence – the federal poverty line. For a family of fou, that
amount is just $5,763.
These families are what researchers call “liquid asset poor” – literally
one paycheck away from financial disaster.
Numbers to know:
$5,763: The cost of
living three months at the
poverty line for a family of
four.
4 in 10: The share of
American households
who lack this cushion in
cash.
Even when all of a family’s assets, such as a car or a home, are taken into account, the percentage of households without an adequate financial cushion of any kind is still significant. In 2006, 22 percent of American families had overall net
wealth (cash plus other assets minus debts) below the $4,632 threshold – they were “asset poor.” In 2012, that figure rose
to 26 percent as families struggled to recover from the recession.
According to the Federal Reserve’s Survey of Consumer Finances, the median net worth of American households fell by
nearly 40 percent from 2007 to 2010, much of it due to losses in home equity as a result of the housing crash. Over this
period, the median net wealth of homeowners plummeted by $71,500.
FACT: Families without emergency savings are much less financially
secure.
Having emergency savings can help families better weather an economic setback. The Urban Institute, for example, found
that households with assets are much less likely to suffer serious hardships in the event of an economic
emergency, such as a job loss.
Families without emergency savings, on the other hand, are much more vulnerable to economic catastrophe, such as
foreclosure, homelessness and dependence on public assistance. Tragically, this vulnerability played out all too often as
jobless rates skyrocketed during the recession.
Unemployment, for example, quickly became the leading cause of mortgage defaults and foreclosures, even as subprime
and predatory lending first precipitated the crisis. As early as 2009, NeighborWorks America reported that 45 percent of
the clients in its foreclosure mitigation program had defaulted because of losses in income.
Enrollment in emergency programs such as the Supplemental Nutrition Assistance Program (SNAP, formerly food
stamps) also rose dramatically in tandem with unemployment rates. More than 46 million Americans today depend on
SNAP assistance, compared to 26 million Americans before the recession.
The devastating loss of families’ wealth and income during the recession also led more families to fall into default on their
debts. The Federal Reserve found that the share of families with debts more than 60 days past due rose from 7.1 percent to
10.8 percent from 2007 to 2010, including fully one-fifth (21.2 percent) of families in the bottom fifth in income.
FACT: It’s getting tougher for families to save.
From 2007 to 2010, the overall percentage of families who saved dropped four percentage points, from 56 percent to 52
percent, according to the Federal Reserve. Hardest hit were families in the middle quintile of income; in 2010, barely half
(49.8 percent) of these families were saving, compared to nearly six in 10 (57.8 percent) in 2007.
Without doubt, the American economy is consumption-driven, and all of us know we “should” save more than we do.
Nevertheless, the first step toward encouraging more savings is to remove the very real obstacles hampering Americans’
ability to save.
For one thing, wealth and income gaps have only widened since the recession. From 2007 to 2010, median net worth for
the bottom fourth of families fell from $1,300 to zero. On the other hand, the top 10 percent of wealthiest households saw
just a 6 percent drop in their net holdings, to a median of about $1.8 million. As low- and moderate-income families fall
further behind on wages and wealth, their household savings deficit yawns even deeper.
Second, the low- and moderate-income households who need the most help in building their financial security are also the
ones who get the least amount of federal help to save. CFED’s report, Upside Down, found that millionaires get an average
of $96,000 a year in federal subsidies and tax breaks rewarding their efforts to save, while people earning $19,000 a year or
less receive less than $5 apiece.
In addition, many Americans don’t have adequate access to low-cost bank accounts or other vehicles for saving.
According to the FDIC, 10 million American households don’t own a bank account (they are “unbanked”).
CFED’s research and practice show that, given the right tools, even the poorest of families can successfully save. Now
more than ever is the time to rebuild Americans’ battered balance sheets – before another economic storm.
CFED FACT FILE
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OCTOBER 20
Resources
• Federal Reserve Bank, 2010 Survey of Consumer Finances, February 2012.
• CFED, 2013 Assets and Opportunity Scorecard Report, January 2012.
• CFED, State-by-State Assets and Opportunity Scorecards, January 2012.
• CFED, Upside Down: The $400 Billion Federal Asset-Building Budget, 2010.
• New America Foundation, Exploring the Relationship Between Asset Holding and Family Economic
Strain, June 2011.
• Urban Institute, Do Assets Help Families Cope with Adverse Events?, December 2009.
CFED Experts
• Ida Rademacher, Chief Program Officer, [email protected]
• Jennifer Brooks, Director of State and Local Policy, [email protected]
• Anita Drever, Director of Applied Research, [email protected]
• Kasey Weidrich, Senior Program Manager, [email protected]
• Ethan Geiling, Senior Policy and Research Associate, [email protected]
The author of this brief is Anne Kim, Senior Policy Strategist, [email protected]
CFED FACT FILE
12
OCTOBER 20