Americans lack emergency savings amid ‘dangerous scenario’

Suze Orman speaks during the AOL BUILD Speaker Series at AOL Studios in New York.

Jenny Anderson | WireImage | Getty Images

An unexpected bill is not convenient at all.

But there are more reasons now that an unexpected event–such as a car repair or medical expense–could put Americans on a precarious financial footing.

Blame it on record high inflation, which has soared to its highest levels in 40 years and sent prices soaring for everything, including grocery store staples like butter, lettuce and dairy.

As 2023 approaches, recession risks also loom. The question is whether the economic downturn will be moderate or prolonged, while high-profile tech employers like Amazon and Google have already begun cutting jobs.

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Meanwhile, the federal government has reached the debt ceiling. It is now up to lawmakers to find a solution so that the US government can continue to pay its bills.

“We’re in a financial epidemic right now, so to speak,” personal finance expert Suze Orman told CNBC.com.

“It’s … a much more dire scenario now than it was during the pandemic,” Orman said of the current financial risks Americans face.

Many Americans have been able to set aside more money than usual during the Covid-19 pandemic, as government aid has meant additional unemployment benefits for Americans who have been out of work for longer, while millions of individuals and families have received stimulus checks.

Personal finance expert Suze Orman's first investment at the moment

That federal money is now dwindling, Orman said, as bills begin to come due — including rents that in some cases have tripled and interest rates on mortgages that are higher than they were before the pandemic.

The environment, she said, may be the wake-up call many Americans need.

“You have to have an emergency savings account, whether you’re in a recession or not,” Orman said.

Americans who live paycheck to paycheck

There has never been a better time to set aside emergency cash.

However, setting aside a large amount of money is still a challenge for many Americans.

A new survey finds that 74% of Americans now live paycheck to paycheck, according to SecureSave, a financial technology company that aims to help workers put emergency savings through their employers.

With inflation soaring, more than half of respondents — 54% — have cut back on their savings in the past year, according to SecureSave’s November online survey of more than 1,000 US adults.

About 67% of workers cannot afford the $400 emergency expense.

One of the things Americans regret the most about their personal finances is not saving for emergencies.

Mark Hamrick

Senior Economic Analyst at Bankrate.com

Orman co-founded SecureSave during the pandemic after for 40 years telling people they needed a savings account.

“Our goal was very simple: Let’s see if we can change the savings rate in America for those who have never saved a penny,” Orman said.

Many people often fall short of this goal. A new Bankrate.com survey finds that most adults — 57% — are unable to afford a $1,000 emergency expense.

“People can’t do it alone,” Orman said. “The key is not to see it in your paycheck.”

Through SecureSave, workers can have savings — such as $25 — automatically taken out of their paycheck, and they may also receive $3 or $5 from their employers.

Orman said that at the end of the year, people are often surprised by how much they save, whether it’s $600 or $1,000.

“They love it,” she noted. “Often they will raise their salary contributions.

“Once you start to see how easy it is to save, the more you want to save,” Orman said.

By pooling the cash you have on hand, you may be able to avoid resorting to credit cards with higher interest rates.

To this point, 25% of consumers surveyed by Bankrate.com said they would have an unexpected charge of $1,000 or more and pay it off over time.

Mark Hamrick, chief economist at Bankrate.com, noted that this strategy will now be more affordable, with new credit card offers to even the most qualified individuals with interest rates close to 20%.

How savings can help other financial goals

Guido Meeth | Digital Vision | Getty Images

According to Orman, creating emergency savings with a business owner is just the first hurdle toward achieving financial wellness.

Orman said the next goal is to set aside eight to 12 months worth of expenses in a separate savings account.

Even cash-strapped workers should contribute enough to their retirement accounts to match their employer, if there is one.

“You can’t cash in the free cash,” Orman said.

As workers reduce their financial stress, this may also help employers. Nearly 30% of workers say they spend 1-2 hours a day worrying about money, according to SecureSave.

It can also help prevent regrets later, according to Bankrate.com’s Hamrick.

“We have historically found that among the things Americans regret most about their personal finances is the failure to save for emergencies,” Hamrick said. “The other is not saving for retirement.”

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