Financial experts are constantly pleading with the American public on the importance of creating a savings plans for the future. The idea behind this guidance is that saving for the future will empower people for a retirement with more options.
While money experts were convincing Americans of the virtues of having a healthy retirement account, they didn’t stop advocating traditional emergency savings accounts. In a push to put extra resources into retirement strategies, many households have completely neglected their rainy day funds.
The Great Recession that began in the last decade shocked the financial stability of many citizens. According to a poll conducted by The Associated Press (AP), households that make less than $50,000 per year are three-fourths more likely to experience difficulty covering a $1,000 emergency.
Researchers suggest these statistics have more to do with the economy than the savings habits of Americans. Our collective financial health is not as resilient as reports have been implying, and the study highlighted the vulnerability of the current economic recovery.
The inability to find money for emergency savings in a monthly budget is not only plaguing lower-income households. Families earning between $50,000 and $100,000 were only two-thirds more equipped to cover an unexpected need of $1,000, but as expected, wealthier families were more likely to have access to the required funds, but not at a percentage that would denote proper emergency saving habits.
Analysts believe that these disappointing savings numbers are the result of an uneven economic recovery because even the most affluent households, those earning in the top 20 percent, were still only 38 percent sure they could cover an unexpected expense of $1,000. If households earning more than $100,000 each year experience difficulty paying a $1,000 bill or emergency notice promptly, then the problem may be both behavioral and economic.
Financial advisors encourage families to have a modest emergency savings account that is unrelated to their retirement. The idea is that events will arise that require every family to have access to funds immediately.
According to a study conducted by the Urban Institute, a small emergency fund between $250 and $750 can prevent a small crisis from snowballing into a larger one, like in the case of an eviction turning into homelessness.
For financial experts hoping to help clients resolve this issue, first a connection must be made between higher risk for financial ruin and lack of an emergency savings plan. There is a somewhat ingrained misconception among American households that the ability to manage daily requirements is the same as being financially stable. In the same study by the AP, more than 60% of respondents felt good about their economic situation despite the inability of most to save for an emergency situation.
Besides the lack of access to savings, the AP poll also asked respondents how they would cover an emergency need if they didn’t have money available in their personal accounts. The majority said they would attempt to borrow the funds, but 11 percent stated that they would choose to forego paying the unexpected bill. The same group was asked about their retirement savings, and they admitted to struggling to save for the future in that category as well. When asked, 54% reported that even though they work, they’re unconfident about their retirement savings. These reports are eye-opening reminders that most Americans are only one accident or personal injury away from a financial crisis.
Unexpected bills can take the form of many different occurrences. For too many families, accidental injury and hospital bills are the source of their financial emergency. Even if you are insured or have litigation pending, finding the money to pay expenses while injured can be difficult.
A personal injury is just the type of setback that can derail one’s ability to meet their monthly financial obligations and leave a lasting economic impact. It’s wise for families to have a simple savings plan that will take care of them in the event of the worst. If you or a family member needs to speak to a legal representative about an injury or damages you’ve suffered that have caused you financial distress, then contact the experienced attorneys at The Law Offices of Cohen and Jaffe, LLC, in Long Island, New York. We can meet with you to discuss available legal support and solutions.