One Third of People Have More Credit Card Debt Than Emergency Savings

Episode 309 – According to a recent study, an astounding 36% of Americans have more credit card debt than emergency savings, and 27% have no emergency savings at all. These sobering statistics spotlight a glaring hole in many Americans’ finances. If this is you, how do you start to climb out?

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Transcript of Podcast Episode 309

Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, a new study indicates that one third of people have more credit card debt than emergency savings.

The study was published earlier this year as part of Bankrate’s “2024 Annual Emergency Savings Report.” Among the more startling findings, it reported that 36 percent of U.S. adults have more credit card debt than they do in an emergency savings account.[1] But that’s not all. A majority—59 percent—of Americans are uncomfortable with how much they have saved for an emergency. This is up from 37 percent in 2018.[1]

Many people would simply have to borrow money if faced with an emergency. In fact, 27 percent have no emergency savings at all. This is the highest percentage since 2020. The situation is worst amongst millennials (defined as between the ages 28 and 43) at 34 percent. It is best amongst baby boomers (defined as between the ages 60 and 78) at 16 percent.[2]

Bankrate has been measuring these statistics since 2014. The most recent survey was a poll of over one thousand American adults in May of 2024.

The gold standard for emergency savings is said to be at least three months’ worth of take-home pay, and the survey respondents seem to agree with that figure.[3] For those who are more cautious, only 28 percent of American adults felt that they had enough savings to cover a full six months of expenses if needed.

So, what if you’ve fallen behind? It makes sense that a younger person, say someone defined as part of generation Z (between the ages 18 and 27) may be less worried than a baby boomer, simply because many of them have yet to take on the additional responsibilities of parenthood.

Some have suggested that the best way to start saving is to just do it; nothing more complicated than that.[4] There’s no need to worry—at least initially—about much you start out with. There’s no amount that’s too small. One simple baby step might be to simply put your goal in writing. Make saving a priority.

It’s also a good idea to create a budget. One potential rule of thumb you can try is the “50/30/20” rule.[5] Under this guideline, you allocate 50 percent of your monthly income to needs, 30 percent to wants, and the remaining 20 percent to savings. Needs are generally defined as things like housing, food, healthcare, and transportation. Wants are things like vacations, dining out and hobbies. It may take some time to figure all this out, but doing so can show you where you need to make adjustments.

For many, impulse purchases have a way of messing up their budget and savings goals. One way to deal with this might be to try a 30-day cooling off period. Say you really want to buy an expensive pair of shoes you just saw, but the ones you have are perfectly ok. The idea here is to simply wait 30 days before making the purchase. If you still want to buy them 30 days later (and you can still afford them), then go ahead. But after 30 days have passed, you may not be quite as interested, and you might think better of it.

It might also be a good idea to do a detailed audit of your spending. If you look carefully, you may find “leaks” that need to be fixed, such as wasted money on streaming services, magazines and unnecessary groceries.

So, once you get started, where should you put your emergency fund? It’s generally considered unwise to invest your emergency fund the way you would, say, your 401(k). The problem is that you never know when an emergency is coming. If your emergency fund is invested in the stock market and you lose your job when the market is down, your problem could be even worse. A bank savings or money market account might be a better place to start.

There’s simply no way of knowing when a calamity will strike, but it probably will at some point. If you haven’t done so already, it’s time to start preparing.

[1] Gillespie, Lane. “Bankrate’s 2024 Annual Emergency Savings Report.” Bankrate.com. https://www.bankrate.com/banking/savings/emergency-savings-report/ (accessed October 30, 2024)

[2] Gillespie, Lane. “Bankrate’s 2024 Annual Emergency Savings Report.” Bankrate.com. https://www.bankrate.com/banking/savings/emergency-savings-report/ (accessed October 30, 2024)

[3] Gillespie, Lane. “Bankrate’s 2024 Annual Emergency Savings Report.” Bankrate.com. https://www.bankrate.com/banking/savings/emergency-savings-report/ (accessed October 30, 2024)

[4] Bennett, Karen. “How to start saving (even if you’re starting from scratch).” Bankrate.com. https://www.bankrate.com/banking/savings/start-saving-from-scratch/ (accessed November 1 2024)

[5] Bennett, Karen. “How to start saving (even if you’re starting from scratch).” Bankrate.com. https://www.bankrate.com/banking/savings/start-saving-from-scratch/ (accessed November 1 2024)

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