Only 44% of households surveyed had more emergency savings than credit card debt. That’s the lowest it’s been in the nine years that Bankrate has conducted the study.
A look at the numbers
This doesn’t mean that 56% have more credit card debt than emergency savings, however.
First of all, 9% said “Don’t know/Refuse to answer” when asked whether their debt exceeded their savings. That’s a little scary, since it means that those people may be honestly unsure of whether they have more debt than savings. I guess it’s just another sign that people are now too blasé about credit card debt.
Of the rest, 29% (up from 21% last year) had more credit card debt than emergency savings. Another 18% had zero debt (hooray!) but also no emergency savings (yikes!). That’s a jump from last year’s 12%.
Priorities are important
While concerning, this shouldn’t be terribly startling. U.S. balance-carrying household have an average of $9,333 of credit card debt. How many people do you know with $10,000 emergency funds and a credit card balance?
No, if you’re struggling with credit card debt, you probably don’t have a lot in savings.
And if you are struggling to pay down the debt, you’re likely not waiting until you have $10,000 in an emergency fund before you begin focusing on your credit card balances. Instead you’re keeping a bit of money in abeyance for true emergencies — maybe $500 to a couple thousand — and the rest gets funneled to the interest-bearing debt.
That makes sense. But it does lead to scary-sounding study results like this.
More troubling news
So, okay, the study results make sense, even if they aren’t the best indication for Americans’ overall financial state. But some of the study’s other findings are what really concern me.
Specifically, only 43% said that they were focusing on building their emergency savings. Certainly it could be a lot worse, but that’s a 10% drop from last year.
And you can’t even argue that those 10% are now more focused on paying off debt. The number of respondents saying that debt was their focus only rose 1% — from 40% last year to 41% this year.
Oh but hey, in equally-bad-to-worse news, 9% (up from 3% last year) of respondents say that they’re not focusing on building emergency savings or paying down debt.
Sure, some of those people could be ones who already have a healthy emergency fund and no credit card debt. Hence, they don’t need to focus on either. But remember that a minority of households have more emergency savings than debt, so how many of that 9% do you really think have their finances squared away? Answer: not many.
No, I think this is just another case of people being under-concerned with their finances.
Debt is just a way of life to a lot of people now so they don’t focus on paying it down. And they’re so used to not having much in savings — don’t forget that 40% of Americans can’t cover a $400 emergency — that having little to no savings has probably become a way of life too. So why worry too much about either debt or savings?
But there were some groups that were definitely concerned with debt: millennials. Not surprisingly, the study found that they were more likely than other age groups to have more debt than savings, and they were also the only group where the majority (52%) were focused on debt repayment over emergency savings.
Perhaps that’s not the ideal set of priorities, but I can’t say that I blame them. That was the route that I took when I was paying down credit card and student loan debt.
Of course, at that point between my disability and Tim’s unemployment, we had guaranteed, government money coming in. This meant we didn’t have to worry about a layoff or a cut to our hours. We could always cover the rent and basic expenses, so an emergency fund wasn’t as necessary for us.
Most people aren’t in that situation, so I hope some of those millennials’ focus shifts to concentrate on emergency funds in addition to their debt — as tempting as it is to kill that interest-bearing debt asap.
A hard look at myself
While I don’t have credit card debt, I’m not a lot better than the people in this study when it comes to being concerned with emergency savings.
As I said, I’ve historically focused on debt repayment rather than building an emergency fund. Even once I got rid of my non-mortgage debt, I put in $5,000 (not a lot given potential homeowner emergency costs) and have only added small amounts to it ever since. Years later, it’s only up to $7,900.
Now, that’s not as big a deal as you might think for two reasons. One, my expenses have gone down significantly since the divorce, so that’s probably three to four months’ expenses right there. Two, I don’t use my emergency fund, even for unexpected expenses. Instead, I dip into my savings account.
But still, I feel like I should have at least $10,000 in my emergency fund. So that’s my new goal, which I could reach pretty quickly — if I didn’t need to balance it with funding retirement and paying off my mortgage early.
Alas, I want to focus on both of those as well, so the EF can’t get the star treatment it probably deserves. Still, I’d like to put at least $200 a month into my emergency fund. Preferably closer to $300.
Here money, money, money
It’s just a matter of finding a little extra money in the budget. I’ve been putting $100 a month into the emergency fund for a couple of months now. (It was $50/month before — I told you it was a low-level priority.) But $100 a month isn’t enough. So where can I get the extra funds?
Well, I’ve been contributing $100 a month to my vacation fund, but that’s currently up to more than $1,200, which will be plenty for FinCon in October — my only planned travel for the foreseeable future. This means that for now I really don’t need to keep stocking the account. The emergency fund is far more important.
So that $100 can go to the EF.
And each month I’m going to round whatever I would put into savings down to the nearest hundred, putting the rest into the emergency fund. Meaning that if $250 were set to go to savings, I’d put $200 in and scoot the extra $50 into the emergency fund.
This means I won’t hit $300 at any point, but some months I may get close. Besides, even at just $200 a month, it should only take me 11 months to exceed the $10,000 mark.
After that, I’ll probably go back to putting in just $100 to $200 a month in. I do want a reasonable balance, but as I keep saying, I have the mortgage and retirement to worry about. I don’t want too much money caught up in an account that, ideally, I’ll never touch. Because I’d only raid the emergency fund as a true, savings-is-completely-drained, last resort.
Do you have more credit card debt than emergency savings? What’s your ideal EF balance?