Poll shows most do not have money available for unplanned expenses

The National Foundation for Credit Counseling’s (NFCC) July online poll revealed that 64 percent of Americans would utilize a source other than their savings account to satisfy a $1,000 unplanned expense.

The largest number of close to 2,700 respondents, 36 percent, said they would tap their savings account to fund the unplanned expense. Utilizing rainy day funds for an emergency is exactly why a person saves – to protect them against the unknown. However, the remaining 64 percent are in a much different situation, living on a slippery financial slope.

The poll found that consumers without adequate savings have poor resolution choices when an emergency arises. While people often say they can’t afford to save, the truth is they can’t afford not to.

The survey revealed that 17 percent of respondents would resolve the problem by borrowing the money from friends or family. Asking those close to you for a loan can be awkward, and have a potentially negative impact on the relationship. Further, it can lead to “serial borrowing,” with the borrower always leaning on someone else to solve his or her financial problems.

Perhaps even more troubling is that another 17 percent said they would neglect existing obligations in order to satisfy the emergency need. 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, putting negative marks on the credit report and resulting in a lower credit score. 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.

The next highest number of responses was in the category of selling or pawning assets, with 12 percent choosing this option. Disposing of unwanted or unused items can be a positive way to raise funds. However, no one ever wants to be in a position of having to sell items at bargain basement prices out of desperation. If you have items you can do without, the time to liquidate is when you’re in charge of the sales price, putting the proceeds into a savings account.

The resolution options of taking out a loan or obtaining a cash advance from a credit card were each selected by the least number of respondents at 9 percent. The low number of individuals choosing these categories could indicate a lack of access to credit, which might be a good thing. Taking on new debt would put stress on existing obligations, the last thing someone in a financial crisis needs to do.

Selecting options other than taking money from savings should be a red flag to consumers. 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.

The July poll question and results are as follows:

If you needed $1,000 for an unplanned expense, where would you turn to find the money?

Your savings account = 36%
Take out a loan = 9%
Borrow from friends or family = 17%
Cash advance on your credit card = 9%
Disregard other monthly expenses = 17%
Sell or pawn assets = 12%

The National Foundation for Credit Counseling (NFCC), founded in 1951, is the nation’s largest and longest serving national nonprofit credit counseling organization. Money Management International is a member of the NFCC. The NFCC’s July Financial Literacy Opinion Index was conducted via the homepage of the NFCC Web site (www.DebtAdvice.org) from July 1 - 31, 2011 and was answered by 2,667 individuals.

Jennifer Wells works as a program manager in the Marketing department at MMI.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.