Monday, March 16, 2009

A Shocking Survey

A new study by MetLife paints a disturbing portrait of Americans' financial health: Half of the respondents reported that they would be unable to pay their bills a month after losing their jobs. Upwards of a quarter said they couldn't survive financially for more than two weeks without their paychecks.

Here's the worst of it: Nearly a third of those making more than $100,000 annually said they wouldn’t be able to meet their financial obligations for more than one month following a job loss.

My single mother raised three kids living paycheck-to-paycheck, so I know how difficult it is for individuals working low-paying jobs to save money, let alone amass a comfortable financial cushion.

But making more than $100,000 and having no savings to fall back on? Shame on you. That shows either a woeful lack of planning or irresponsible, out-of-control spending. Or maybe both.

If you don't have a rainy-day fund and you're still working, start setting aside as much as you can per month in a basic savings account that you can access any time. Experts recommend that you save enough to cover nine months' worth of basic expenses, but if you can cover three to four months' worth, that's a good start.

Of course, you should also be contributing to a retirement plan and saving for your kids' college expenses (if applicable) as well. Americans are terrible at that also, according to all the stats I've read.

This economic climate may be changing our ways, however. The MetLife study also found that for the first time in the history of the survey, nearly half of respondents said they have all the possessions they need, up from 34 percent in November 2006. And three-quarters no longer agree that the pressure to buy more and better material possessions is greater than ever.

Is cutting back on spending bad for the economy at this moment? Probably. But becoming more financially responsible, and teaching our children to do the same, will be better for Americans' futures.

8 comments:

  1. Thanks for letting me know about your new blog. I completely agree with this post, as I was so thankful my husband and I saved an emergency fund. We had to put it to use when he was laid off for 18 months (he just got a job this September). We actually went from being tens of thousands in debt to being debt-free (except for car/house) to having tens of thousands in an emergency fund. It helps that we both make healthy salaries, but we still had to commit to being smarter with our money. Look forward to reading more!

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  2. Good for you, Kristy! Glad to hear that you had the back-up when you needed it. And I'm glad to hear your husband got a job last fall. This has got to be a brutal time to be out of work.

    I feel so terrible for those who are job-hunting in this economy.

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  3. I know...I feel like we emerged from our own personal recession before the real recession hit. So all the issues we were experiencing weren't in news -- and now that they are I definitely have sympathy. I could go on and on about all the things we learned about ourselves and our relationship with money. Look forward to hearing what others have to say.

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  4. I'm constantly amazed at how most people - regardless of income bracket - feel they must spend most or all of their bonus checks, tax returns or financial windfalls. We've always lived by the spend a little, save a lot mantra.

    Kristy, I'm glad your family has landed on your feet after the stressful financial challenges.

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  5. Congrats on the blog Karen, and thanks for letting me know about it. This post most certainly hits home for most of us, since we're either cutting back to survive or preparing to weather the storm of an emergency situation.
    The best (worst?) story I heard in the past few days was a friend of a friend couldn't sell their condo for what they paid for it so to make room for a growing family, they paid to have their basement refinished using their credit card. I almost fell off the couch.
    On a different note, it seems like "the experts" continue to increase the number of months worth of expenses they recommend keeping on hand. Wasn't it pretty recent that the rule of thumb was 3 months, then I read that 6 is safer in this climate, and your post is the first place that I happened to have read 9. Given the worsening state of the economy, it makes sense that this number increases, since it's likely that it will take longer to recover from a job loss. In our house, we continue to build up a number of flexible savings vehicles like CD's and savings accounts. Another important point that someone made to me recently was that if you're already saving for your kids' college, perhaps via a 529 plan, but struggling to build up your emergency fund, this might be a good time to cut back on college savings since it's possible to borrow for college but not so much for retirement. Besides... I would have been better off stuffing my kids' 529 contributions under my mattress the past 2 years anyway.

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  6. Eric, I've been thinking that a solution for some people in danger of losing their homes is to rent out some rooms. During the depression, people who fell on hard times but owned large homes started using them as boarding houses. It might work again, who knows?
    Yes, the emergency fund recommendation keeps getting larger, just as people are less able to save. I've even heard up to one year. Of course, that's unrealistic for most people. When my kids were little we were told to put $50 away each for them for college. Problem was we didn't have $100 a month to spare - not even close!
    Eventually we were able to start college funds for them. I'll do a separate post on that sad story, but I can relate to your woes on that front!

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  7. Karen, I'm looking forward to hearing more of your personal financial experiences. I think they carry more influence than what a high-paid analyst might recommend to someone that is in a situation they can't really comprehend.
    I hadn't heard the story about renting rooms during the (first) depression. Living in New England in our first home with one (soon to be 2) small kids, we're comfortable, but there's no rooms to spare!
    It's interesting what little things you remember from childhood, but I can recall my own parents poking fun (must have been sometime during the early 80's) at my grandparents who happened to press soap slivers together. I can recall them saying too much of the depression was still with them and it was so tacky. I wonder what they think of that practice today. I know that's something I do, with no embarrassment at all. It's not the dollars or cents that you save from doing so, but the mindset that you maintain throughout the day. "How can I conserve, how can I be more efficient, how can I do something smarter?"

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  8. It's interesting that you remark about those frugal practices of our grandparents and how we used to make light of them, Eric. I inherited my grandmother's rubberband ball, which I still keep on my desk and use. I suspect that it dates from the Depression.

    Today we just call using the last ends of the soap "sustainable practices"! If only our parents had stuck to those smart, thrifty ways, huh?

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