Are Michigan families financially fragile?

Are you confident you could come up with $2,000 in 30 days?

Families in the United States have experienced what could be called “new normal” – referring to our financial health as indicated by such things as our employment status, salaries and the value of our homes, emergency funds and retirement accounts. Of course, many Michigan families have also experienced this readjustment to a different economic reality.

In a Brief supported by the FINRA Investor Education Foundation and entitled The Financial Fragility of American Families, Annamaria Lusardi from The George Washington University School of Business shared how she and her colleagues measured a family’s “financial fragility.” They developed a set of questions around a family’s capacity to access emergency funds.

One of the questions was: “How confident are you that you could come up with $2,000 if an unexpected need arose within the next month?” The amount chosen was $2,000 because it is close to the cost of a major car repair, a large medical expense, a legal fee or a major home repair.

Their results showed that only about 35 percent of respondents said “I am certain I could come up with the full $2,000.” 40 percent said they either probably could not or were certain they could not come up with $2,000. How confident are you that you could easily access $2,000 for an unplanned expense?

What are some options for Michigan households to be better prepared for a financial emergency? Michigan State University Extension offers the following keys to successful saving:

  • Utilize direct deposit for pay checks.
  • Pay bills on time, every time and avoid late fees.
  • Budget finances and stick to that spending plan to avoid unnecessary and impulse spending.
  • Stay away from check cashing outlets and/or rent-to-own facilities. Many times these types of establishments charge high interest rates.
  • Take advantage of specialty savings accounts at financial institutions. These might include holiday savings accounts or vacation accounts for special “big ticket” items.

In addition, your household can consider these three ways to save more of your money:

  1. When income increases – “save the raise”
  2. Make a commitment to cut expenses and save the extra money, no matter how small the amount seems
  3. Pay yourself first. This means listing “saving” as an expense in your budget.

If you’re wondering about your financial health, take a financial health survey from MI Money Health to get your financial health score! It’s confidential and your answers never connect back to your name. This survey can help you evaluate your current financial situation, provide ideas on how you may improve your financial health, and connect you to resources in your local community.

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