University of Wisconsin–Madison
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Emergency savings for low-income consumers

The recent economic downturn has highlighted the financial fragility of many U.S. households. The foreclosure crisis, high consumer debt, and depleted retirement savings have all focused significant attention on household balance sheets. The reality for many households, regardless of the economic cycle, is that finding liquid financial assets in order to address unexpected expenses is a major economic burden. Households may prepare by setting aside modest amounts of emergency savings, but such saving is difficult for low-income families, and most do not do so. There are few policies or programs that encourage such unrestricted savings, and in fact, some even discourage such savings. This leaves household financial balances in a condition that has been dubbed “financially fragile” by some observers. Households without timely access to financial liquidity when an unexpected event occurs may experience economic and material hardships that threaten household well-being, including housing instability, food insecurity, or failure to access needed medical care. Beyond unexpected negative events, a financial reserve fund can also aid households to take advantage of opportunities that may enhance economic mobility, such as training that increases wages, or the purchase of a vehicle. The importance of unrestricted savings for unexpected contingencies, especially among low-income households, is an important consideration for researchers and policy advocates. In this article, we make the case that even small amounts of emergency savings are an important form of liquidity for low-income consumers, and that policies that encourage such unrestricted savings can help low-income families maintain financial stability and economic well-being.


Economic Support, Financial Security