Updated on 03.19.15

Why Americans Aren’t Ready for an Emergency

woman looking at city out the window

One in four Americans has more credit card debt than emergency savings. Photo: Alex

Let’s talk about our saving skills for a minute, America. Because it seems that while we’re improving, we have yet to master the skill of setting aside appropriate amounts of money for a rainy day.

Instead, we’re consumed with instant gratification and keeping up with the Joneses. We want the latest iPad, spring vacations every year, and the coolest, newest SUV on the market. We want to live like the rich and famous, even if we aren’t rich or famous.

All of which has left many of us unprepared for emergencies life may throw our way. But don’t just take my word for it.

A recent survey conducted by Bankrate, in association with its February Financial Security Index, bears this out. The survey found that 24% of Americans owe more money on credit cards than they have in emergency savings. Another 13% have no credit card debt, but no savings either.

This means one-third of Americans are not financially prepared for an emergency.

Generation X appears to be the worst off, according to the survey, primarily because they’re at a point in life that includes many expenses – from tuition to mortgages. Thirty-two percent of survey participants ages 30 to 49 said they had more credit card debt than emergency savings.

Millennials are slightly more prepared, with just 21% having more credit card debt than savings.

And retirees are in the best shape, with just 14% reporting their credit card debt was bigger than their emergency savings.

So what does that say about us?

“Savings and frugality are a lost art,” says Ed Snyder of Oaktree Financial Advisors in Indiana. “Too many people are living for today.”

We make more money than previous generations did, but we also spend a lot more, says Snyder, who believes behavior modification is required to improve this picture.

“Our parents and grandparents were better savers. They were more frugal. In previous generations, there were still traditional pension plans, and yet people were still better savers than we are now. It was not uncommon for people of that generation to pay cash for a car or have a large down payment for a home. It’s like there is no delayed gratification anymore.”

The behavioral changes Snyder is talking about are not necessarily fun, but they are important when it comes to establishing some financial security.

He suggests such “old-fashioned” things as establishing a budget on paper and paying yourself first when you get paid each week or month.

For those struggling to get by on smaller incomes, Snyder also suggests looking for savings at every turn.

“If your family wants to go out to eat as a treat, search for restaurants where kids eat free,” he suggests as an example.

While on the subject of children and money, perhaps behavior modification when it comes to spending needs to start at a very early age.

Lisa Detanna, a managing director at Global Wealth Solutions Group of Raymond James in Beverly Hills, Calif., organizes financial literacy concerts aimed at teaching children about handling money wisely.

To date, she has hosted concerts in Compton, Calif., and Beverly Hills. More than 1,100 people attended the recent Beverly Hills concert, including dozens of kids ages 3 to 17.

“It’s all about budgeting, planning, and saving,” says Detanna, who recently published a children’s book called “Treasures in the Winter Vault,” designed to teach kids about the importance of saving and being financially responsible.

She also says our spending habits (and lack of savings) are greatly influenced by the way society has changed and the way our behavior has changed.

“About 70% of the time, after the patriarch and matriarch make the money, three generations later it’s gone,” says Detanna.

The constantly showcased lifestyles of the rich and famous and easy access to Internet spending 24 hours a day have contributed to this wasteful spending pattern.

“For previous generations, it was a really a different time, where we were not as aware of the extravagances of the uber-wealthy. It wasn’t so in our face,” Detanna says.

“When we get money now, especially kids, they have a variety of unlimited possibilities to spend that money, where before we would actually have to go the store.”

When it comes to finding ways to increase our savings accounts, Detanna, who has been managing wealth portfolios for Hollywood executives and celebrities for more than 20 years, has a variety of advice.

Like Snyder, she begins by pointing out that it’s about remembering to pay yourself first when you get paid. Have money automatically deducted from your checking account or paycheck that goes directly into savings.

In addition, look carefully at your optional expenses or discretionary spending each month and identify ways to save.

“Review your bank statements every month and make note of money you spent on variable items that you could cut back on and start using that savings to pay yourself,” says Detanna.

For homeowners who may have gotten to the point where they have no savings, Detanna suggests now is a good time to refinance at a lower mortgage rate.

“Take advantage of 60-year-low interest rates,” she says.

The dropping cost of gas is another area where Detanna sees an opportunity to save.

“Depending on what car you drive, we are saving an extra $20 to $40 on gas,” she says. “Put that money away to start creating a savings reserve, rather than going out and buying a gas guzzler.”

Meanwhile, there was some good news in Bankrate’s latest survey – depending on how you look at it. About 58% of respondents said they have more in emergency savings than credit card debt. So more than half of Americans are prepared. Unfortunately, that percentage is similar to Bankrate surveys dating back to 2011.

In other words, there has not been much improvement since 2011, even while the economy has been improving.

“If you don’t have an emergency savings,” says Snyder, “you’re just daring that crisis to happen.”

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