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Consumers lack emergency savings

By Marcie Geffner · Bankrate.com
Thursday, August 11, 2011
Posted: 9 am ET

If you needed $1,000 for an unexpected expense, where would you get the money?

The National Foundation for Credit Counseling, or NFCC, asked consumers that question in a poll last month. The poll was conducted informally through the counseling service's website, yet still, the results were sobering.

Thirty-six percent of the 2,667 respondents said they'd tap a savings account. But 64 percent said they'd turn to other sources to get the money.

Seventeen percent said they'd borrow from friends or family. Twelve percent would sell or pawn some of their assets. Nine percent would take out a loan, and a similar proportion would get a cash advance from a credit card.

None of those options was a smart move, according to NFCC spokeswoman Gail Cunningham.

"Without adequate savings, consumers have poor choices when an emergency arises," Cunningham said in a statement. "If saving money has always seemed out of reach, there is no better time than now to get to the root of the problem and protect yourself, your family and your financial future."

Asking friends or family for a loan can be awkward, harm the relationship and lead to serial borrowing in which one person is always leaning on others to solve his or her financial problems, the counseling agency warned.

Selling off unwanted stuff can be a good way to raise cash, but not as an act of desperation. A better approach is to liquidate assets ahead of time and stash the money in a savings account for emergencies.

Taking on more debt can make paying off prior obligations more difficult. And indeed, 17 percent of the poll respondents said they'd neglect existing obligations to get the $1,000 they needed for a current expenditure.

"This option can easily snowball out of control and have serious consequences. Skipping the rent or mortgage payment and neglecting to pay credit cards or loans will cause late fees to be added to the debt," the NFCC said in the statement. "Well-meaning individuals who are already living on the financial edge may never be able to catch up, exacerbating the problem for months or years down the road."

How would you get $1,000 at short notice?

Follow me on Twitter: @marciegeff

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1 Comment
M
August 11, 2011 at 4:59 pm

It is on a credit counseling website. I would say the results are a tad biased.