While no one wants to tap into their emergency savings, most Americans can’t even afford to do so when they need to.
A shocking new Bankrate survey of 1,030 individuals found that more than half of American adults (56%) lack sufficient savings to withstand an unexpected $1,000 expense. Of that number, 21% said they would pay off debt by financing spending with a credit card, while 16% would cut back on other spending to close the gap. Another 10% would borrow from family and friends, 4% would take out a personal loan, and 5% said they would do “something else.”
Bankrate senior economic analyst Mark Hamrick said luck that this survey is “disappointing because it is an indication that many Americans are living paycheck to paycheck.” He said this is sadly consistent with earlier Bankrate research that found the two biggest financial regrets of individuals are the failure to save for emergencies and the failure to save for retirement.
Without the need to save, 35% of respondents said they would borrow the money, from friends and family, a personal loan, or put it on a credit card. The findings show an unsurprising generational gap, with three in five baby boomers saying they would pay for an emergency expense from their savings, while less than a third Gen Zers will do the same.
“It’s understandable, to some extent, that those who are more stable in their lives and personal finances may have that capability,” Hamrick said. “It may also indicate that many older individuals have enough experience with their finances that they understand that saving should be a priority.”
The reason most respondents cited their lack of a parachute? Inflation—followed by rising interest rates and new changes in employment conditions—prevents them from putting money aside. “The once-in-a-generation surge in inflation has left its mark on Americans’ savings habits,” Hamrick wrote in the report. “There is a glimmer of hope, however; 19% of Americans say that rising interest rates are the reason they are saving.
People tend to save more when they anticipate a prolonged economic downturn. That is “the ‘precautionary’ motive of austerity,” economist Guillaume Vandenbroucke wrote for St. Louis Fed in 2021. “If the recession is not expected to last, people will likely use their savings to continue their consumption; that is, they will continue to pay their rent, mortgage, and utility bills.”
But despite great pressures, they were not satisfied with their situation; 57% of respondents said the current state of their savings is stressing them out. Nearly one in four (22%) of US adults have no emergency savings at all, Bankrate found—the second-lowest percentage in 13 years of polling. That’s particularly bad news given that most Americans need at least six months of emergency savings to feel comfortable day to day.
Even in economically uncertain times, paying off debt quickly—and contributing to emergency funds—should be a top priority, Bankrate advises, lest a loss of income disrupt your plans. And multitasking is possible; More than a third of the study’s respondents said they now prioritize paying off debt and saving money in equal measure.
“For those smartly focused on managing and building their emergency savings, this is an opportune time to benefit from rising interest rates,” Hamrick wrote. “Emergency savings, by definition, must be liquid or easily accessible. A high-yield savings account dedicated to this purpose is equivalent to a self-insurance policy that guards against unplanned expenses .
The takeaway, Hamrick added good luck, that’s why people of all stages of life—and of all incomes—can recognize the importance of avoiding “the pitfalls of insufficient savings.”
This story was originally featured on Fortune.com