Julie Jason: The importance of savings.
The importance of having savings certainly has been brought to the forefront during the COVID-19 pandemic, as many people found themselves living on, and often exhausting, their emergency savings due to illness or job loss.
For example, a study released in September (tinyurl.com/y6k52dkm) by SimplyWise, a technology company that offers resources related to retirement and Social Security, found that 45 percent of workers who were furloughed or unemployed due to the pandemic could not last a month living off their savings, with 26 percent saying they could not make it two weeks.
So the question is: Does having even a small amount of savings, say $250, make a difference?
The answer is yes, according to “Savings: A Little Can Make a Big Difference.”
The study, which focused on lower-income families, was recently published by the Financial Industry Regulatory Authority Investor Education Foundation and SaverLife, a nonprofit company that seeks to build financial security for working families.
According to the study, “People who were unable to maintain a savings balance above $250 were 71 percent more likely to have moved in the past five years for financial reasons versus people who were able to sustain a balance above $250.”
When the results were controlled for factors like household income, gender, age, education, marital status and the presence of dependents, those who were “unable to maintain a balance above $250 were still 29 percent more likely to have moved for financial reasons.”
To create the study, which can be found at tinyurl.com/ybhl596j, researchers reviewed the three-month average daily savings balances for 687 participating SaverLife members, then combined the data with survey information that looked at the members’ attitudes and behaviors when it came to finances.
Eighty-three percent of those surveyed who were unable to keep a savings balance of more than $100 were more likely to use “high-cost borrowing,” such as pawn shops, auto — title loans, refund advances and payday loans, when compared with those having savings above $100. Adding in the control factors, those who could not maintain the $100 balance were 39 percent more likely to use high-cost borrowing.
As might be expected, those who were able to maintain a savings of more than $100 were 61 percent more likely to say they were financially satisfied (29 percent when using the control factors) than those who were unable to maintain the $100 balance.
“(T)his new study underscores the need for innovative, low-barrier savings products that help financially struggling households build and maintain savings,” FINRA Foundation President Gerri Walsh said. “We now know that even a very modest savings cushion correlates with significant life improvements.”
One of the recommendations included in the study urged “all organizations to encourage saving money even in the smallest of increments. Many financial education programs equate adequate emergency savings with three months of living expenses. That guidance may work for some people, but isn’t always achievable for low-income households. This study suggests that even a very modest savings cushion correlates with major life improvements.”
Indeed, creating and maintaining a “savings cushion” is an important financial goal for the new year. Just a few hundred dollars can make a difference.
Julie Jason, JD, LLM, a personal money manager ( Jackson, Grant of Stamford) and author, welcomes your questions/comments (readers@juliejason.com). Her awards include the 2018 Clarion Award, symbolizing excellence in clear, concise communications. Her latest book, a curated collection of Julie’s columns, is “Retire Securely: Insights on Money Management From an Award-Winning Financial Columnist.” To hear Julie speak, visit juliejason.com/events.