EBRI Issue Brief

Emergency Savings: The Reality of Workers’ Liquid Savings — Evidence From the Survey of Consumer Finances

Aug 29, 2019 20  pages


An important factor for a family’s financial wellbeing is the ability to cover unexpected expenses, such as a car or furnace repair or something even more financially challenging such as a loss of a job.

  • However, according to Federal Reserve data, only half of workers say they have a rainy day fund that could cover three months of expenses in case of sickness, job loss, economic downturn, or other emergencies.
  • An even more dire picture is found after calculating how much savings families actually report is available to cover such expense levels:
    • Of all families with working heads, 20.1 percent had liquid savings of more than three months of their family income.
    • This went up slightly to 21.0 percent when certificates of deposit (CDs) were added to the liquid savings.
    • Even if the threshold is reduced to 75 percent of three months of family income, only 25.7 percent of families with working heads had liquid savings in excess of this amount.
    • Again, only a small increase resulted when CDs were added, bringing it to 26.7 percent.
  • The families whose heads were defined contribution (DC) plan participants were found to be more likely to have sufficient liquid savings to cover three months of expenses than those with heads who were nonparticipants.
    • In fact, almost one-quarter (24.7 percent) of families with DC-plan-participant heads had more liquid savings than three months of their income, compared with 13.4 percent for families with DC-plan-eligible nonparticipating heads and 17.7 percent for families whose heads were not offered a DC plan.
    • A particular finding of interest was that families whose heads were eligible nonparticipants were less likely to have sufficient liquid savings to cover three months of expenses than those whose heads were not offered a plan.
  • The relatively low percentage of families who had liquid savings that surpassed the three-months-of-income threshold held regardless of the family head’s age or of the family’s income. Consequently, the need for an emergency savings fund is not limited to just families with low incomes or with younger heads.
  • Given the low percentage of workers and families who had sufficient savings to cover a loss of income for any extended period, emergency savings programs could be directly beneficial to workers and indirectly beneficial to employers through higher employee satisfaction. Despite employees preparing for retirement through their participation in the DC plan, help is needed by a sizable share of these employees for short-term financial issues. The potential need is even more pressing for those who are eligible for the plan but do not participate. Consequently, addressing short-term financial issues could lead to even better long-term results through a reduced need for early withdrawals (and tax penalties) and potentially higher contributions to a DC plan after an account for short-term financial issues is funded.