
Many don't have $2,000 for a rainy day - lion0
http://money.cnn.com/2011/05/24/news/economy/americans_lack_emergency_funds/index.htm?hpt=T2
======
billybob
If you don't have enough money to handle an emergency, _you have an
emergency._ Go ahead and panic. Trade your car for a cheaper one, move into a
cheaper apartment, stop eating out, sell your TV, and _get an emergency fund_.

If you're already living on toasted rats in a cardboard box, that's different,
but if you've got unnecessary expenditures, you should really cut those out
and get an emergency fund. To do otherwise is reckless. And you're cheating
yourself of sleep and peace of mind.

~~~
ebiester
You're looking at it from a middle class perspective. Unfortunately, most of
these people are also deep in debt and have already made such cuts.

This is the byproduct of double digit unemployment as much as anything. As
much as we talk about consumption, most of it is at the middle class level.
Now, I've seen poor people make very bad decisions, but many are on purchases
you and I would make without a second thought.

It is far too easy to forget how good we have it.

~~~
hugh3
_Unfortunately, most of these people are also deep in debt and have already
made such cuts._

Sometimes I wonder about this. How many poor folks are wasting their limited
budget on frivolous crap?

One reality show I really _would_ like to see would be about a sensible
financial advice type who parachutes into the lives of low-income, deeply-in-
debt people and shows them how to budget properly.

~~~
djcapelis
One reality show I would really like to see would be about sending entitled
people into low income neighborhoods so we can all watch them realize just how
hard working some people are and just how well most people manage their money.
Maybe then they'd stop saying misinformed stuff like "all that person really
needs is someone to help them with a budget." A budget helps you cut excess
spending. There's not a lot of spending in low income places almost by
definition. There is not a lot of excess.

Deeply in debt people typically don't come from low income neighborhoods, they
come from the middle class. Low income folks can't get credit that easily,
even when credit was easy.

Most poor people I know work amazingly hard and manage their money well.

~~~
btilly
I know a lot of poor people who work hard and manage their money well. I also
know a lot who could save themselves a ton of money with obvious (if not easy)
steps like quitting smoking.

~~~
timsally
Quitting smoking may seem obvious, but it's important to consider the context.
Middle class people grow up in homes that are very anti-smoking. In the rare
case that a middle class family isn't anti-smoking, middle class schools
certainly are. Hell, I was indoctrinated with anti-smoking feelings starting
from age 10 in school. Whereas a lot of poor people are probably being _given_
cigarettes at age 10. Combine this with the highly addictive properties of
cigarettes and I'm not convinced quitting smoking is a reasonable money
management strategy to suggest unless we provide some sort of support program
or infrastructure. If there are free programs available to teach how to fight
addiction, then sure I'm on board.

~~~
btilly
I wasn't claiming that quitting smoking is a reasonable money management
strategy. But a pack a day is something like $1500/year straight to your
bottom line. No matter what your feelings about tobacco, it is an obvious
luxury that you can live without and save a lot of money.

This relates to a very important distinction between being working poor and
impoverished. And it isn't money. It is whether you've given up.

Someone who is working poor may objectively have it hard, but they feel in
control of their lives. They can and do plan for the future. They save up for
things. They anticipate what can be anticipated and make plans. I've seen
people like this calculate the cost of smoking, and choose not to because they
can't afford it.

Someone who is impoverished believes that their life is hopeless. Bad things
are going to happen to them. They might have some influence over which bad
things, but it is going to be bad. So why bother? Live for the moment and
tomorrow can go hang. Smoke another cigarette, hope for some cheap booze (or
other substance) tonight, it is all hopeless anyway.

Someone in the latter frame of mind knows that payday loans are stupid, but
doesn't care. Because it is bad in that nebulous future that they already know
is going to suck, and how much worse is it really going to get?

Anyone who talks about the poor being good with money who does not understand
this critical difference between being working poor and impoverished is
missing a very important point.

~~~
timsally
I agree with your distinction and it is an important one. It is also important
to define the function by which one becomes either a part of the working poor
or impoverished. I argue it is a function of personal motivation, race,
sexuality, religion, and a myriad of other factors. Indeed, pointing this out
was the point of my previous exposition regarding smoking. I'm wary of those
people that place too much weight on the personal motivation term in the above
equation.

------
robflynn
I certainly don't have any put away for a rainy day. After a bit of time being
jobless, I finally found some underpaying work to get back on my feet. Coupled
with various bills and medical bills, etc., I'm sitting at a paycheck to
paycheck point. I get paid again tomorrow and I have $5.00 in the bank. It's
quite depressing. Couple that with my girlfriend also losing her job and we
tore through any savings pretty quickly.

I have a side project going that I'd love to launch in the next month or so,
but I'm also polishing up the resume to begin sending out June 1.

Time for me to start pulling myself out of this rut now that I've got things
in my life stabilized again.

I actually feel a little embarrassed posting this here, but what the hell.
This will act as motivation for me. I seem to have forgotten along the way
that I'm a good developer and worth more than the small salary I have right
now. (I took on some consulting work that sort of turned full time. The salary
was not/is not great but I kind of ended up 'trapped' there. Stockholm
syndrome for the employed?)

~~~
sunchild
Don't be embarrassed. Many "rich" people have similar problems. It's just
that, in their case, the cash flow figures are larger by orders of magnitude.

Desperation can be a tremendous motivator, and a great way to set priorities.
Think of yourself as a newly-arrived immigrant. Now make your way in your new
world.

Whatever you do, don't let depression set in. Depression = failure. Even if
you struggle to pay the bills for the rest of your life, if you stay positive,
you'll keep the people you love in your life.

It might help to imagine yourself getting that big break, and making enough
money to never worry about money again. If that happens, how will you remember
the tough times? Will you be proud of yourself, or ashamed? Will you regret
that you treated others (and yourself) poorly? The history of the world is
chock-full of successful people who were haunted by their past.

I'm on a roll here, so let me finish with this existential note: life is a
bloody, sweaty mess, and there is no natural justice. From the day you're born
to the day you die, you're flailing about on a tightrope over infinite
emptiness. There's plenty to fear, and the easiest thing in the world is to
fall.

But don't you really want to be the guy dancing on that tightrope and laughing
at the void?

~~~
pyre

      > Depression = failure
    

Just to clarify, depression (mostly) leads to failure. Depression doesn't
define you as a failure.

~~~
sunchild
Hmm. Not interested in getting into a debate about whether depression is an
illness or whatever, so I'll just say "OK".

~~~
nopassrecover
I think depression, as distinct from unhappiness, is something you dismiss as
unhappiness (i.e. circumstance driven) until you experience it and realise it
is an illness.

The clearest example I can imagine is, take someone who is down on their luck,
unemployed, in debt, medical problems etc. and fly them to the best doctors in
the world, then give them a great new job with a million dollar signing bonus
- I think they'll typically be pretty happy. Do this to a depressed person and
they'll probably try and kill themselves because they consider themselves
unworthy.

~~~
allwein
The greatest thing my Grandma ever taught me was that it's okay to be sad when
bad things happen. It used to be that I'd get sad for some reason, then I'd
feel bad for feeling sad, and this would just set up a tight vicious cycle
until I literally became depressed. Once I gave myself permission to feel sad
and not feel bad about it, I was able to stop that from happening in the
future.

------
ssharp
I think it's very important to instill saving behaviors early on in your adult
life. After graduating college, I had plenty of debt, but still made sure I
was putting money into a savings account.

Technically, it would have been much wiser to put any excess money towards 15%
APR credit card debt than in 5% saving accounts (5% savings accounts did exist
for a few years prior to the 2008 collapse), but actually having money to pay
for unexpected expenses rather than building the debt I was trying to pay off,
felt better.

\---

Freakonomics did a podcast a few months ago, using either this study or a
similar study as part of the podcast. The podcast was about lottery-linked
savings accounts. The other half of the equation was that the same 50% of
Americans who could not come up with $2,000, were also the ones most likely to
play low-odds lottery games. Lottery-linked Savings accounts take the
relatively minuscule interest gains on each account, and throws them into a
lottery pool, where one or several winners will win the "prize".

This style of savings account worked very well in one country (I believe it
was South Africa). The incentive to save, with minimal interest gains, was
low. However, the idea of a big payday, which technically was free (you only
surrender your interest), led many more people to put money away.

These bank accounts are largely illegal in the United States. Partially
because of their image, and partially because states don't want to sacrifice
their own state-owned lottery cash cows. I believe a credit union in Michigan
was able to work around some laws and find a legal way to offer a lottery-
backed savings account.

~~~
hugh3
_I think it's very important to instill saving behaviors early on in your
adult life._

Why early in your adult life? People should begin saving as children.

My parents were sensible. I got my first bank account at the age of five, I
think. They paid me some small amount of pocket money (two dollars a week?),
and encouraged me to save it up to buy things I wanted, and to worship the
magic of compound interest (it helps that interest rates were actually decent
in those days). I enjoyed watching the amount in my bank account go up much
more than I enjoyed actually buying things with it, so I got into good saving
habits.

I can't fathom the idea of an adult (or at least, an adult with a job) not
having a mere two grand in their savings account, and certainly not of having
_negative_ net wealth (ie credit card debt).

Parents! Teach your children about money early!

~~~
aquark
Agreed -- but that worked much better when I could buy a 13% savings bond
(late 80's) than showing my kids the <$1 month interest payment they get now.

I realize that inflation may well have eaten into that 13% hugely but as a
pre/early-teen that didn't factor into my view.

------
anonymouser
I have a question for HN hackers. I make over 6 figure a year. My wife doesn't
work. She keeps telling me that we are not middle class, and that I should
earn more if I want to afford us a middle class lifestyle, because everything
is very expensive now. She also thinks that I'm a bit of an underachiever,
professionally, for earning only 120K a year. Am I an underachiever or is she
out of touch with Midwestern America? I keep telling her that the average
family can only dream of the money I bring home every month with my two jobs.

~~~
jtbigwoo
$120k a year is more income than about 90% of U.S. households. The median
household income in the U.S. is about $45,000.

Your wife needs to find different friends.

~~~
hugh3
Y'know, the actual amount doesn't matter here at all.

I don't care if he's only earning $30,000 a year -- no wife should be talking
to her husband like that.

------
synnik
I've been working my butt off in the corporate world, trying to save a year of
living expenses for my family of 5 in the suburbs, in hopes of quitting and
doing my own thing once I had that cushion.

I hit the 9 month mark, then had major health issues that are wiping a lot of
it out.

At first, I was fairly devastated. Then someone told me, "Isn't this exactly
the kind of thing that savings is for?"

And you know what, it is. Sure, I wanted to quit my job in the near future.
Sure, I wanted to be the rare married family guy who still had the flexibility
to do startup work.

But how blessed and thankful I am that I am "only" going to have 3 months
stored away after this is all done.

It is always good to keep things in perspective.

------
arn
I'd be curious what the survey would have shown if it were given in 2007.

I bet at least some of the people who can't come up with $2000 today is
because they've already eaten into their emergency funds due to lost jobs,
economy, etc...

~~~
kwis
I've seen similar studies about emergency funds for many years. They all say
roughly the same thing: most people don't save money. To the point that not
only do they not have $2,000, they can't _borrow_ $2,000 to handle an
emergency.

~~~
nazgulnarsil
define "most". saving is a cultural norm in china. I've heard figures of as
much as 50% of many family's income being saved.

------
naner
$2,000 is not a "large medical bill" in the US. An unexpected medical problem
will likely cost a lot more.

~~~
PonyGumbo
An appendectomy with an overnight hospital stay (went in at 8pm, left around
3pm the next day) was $24,000.

~~~
GeneralWaste
As a UK resident, I find that distressing. The idea that needing medical
treatment might impoverish me or poverty leaves me unable to obtain the
treatment I need seems exceedingly cruel.

~~~
dmm
He's not going to pay $24k. Either he has insurance to cover most of it or
he'll just not pay it. Bill collectors can't harass you for medical debts.

Hospitals have to treat you regardless of your ability to pay.

The whole situation is far from optimal though.

~~~
PonyGumbo
We had insurance, although nearly a year later we received a call from the
hospital saying that our insurer had refused to pay, and that we'd be
responsible for the bill if the insurer didn't come through. The insurance
company claimed that the hospital hadn't provided the complete paperwork, and
the hospital claimed it had provided the information multiple times.

We received two more calls about it, each about six months apart. It's been a
couple of years now, but it still feels like it's hanging out there - that we
may get a call at any time claiming that we owe this huge sum of money.

------
droz
When I started college, I had 1000$ to my name. I didn't take out any loans
and worked my way through a full load every semester for four years. Graduated
and found a job and lived in places well below what I could afford. Every pay
check I put between 55-65% of what I earned into savings. A couple years later
I bought a house. Took the rest of that savings and put it into the market.
Now, eight years later, I've got six figures in the bank and another five in
the market. It isn't impossible to come up with money, you just have to think
longer term and be disciplined about it.

------
fr0sty
I wonder whether or not there is a difference between the 'ability' and the
'perceived ability' to raise cash quickly.

Many people are cash-poor, yes, but I am surprised that over half the
population has no cash equivalents, hard assets, or access to credit (even
from a relative or friend).

N.B. This is not meant to be financial advice, but just to point out that
people usually have many more options than they think they do.

~~~
robflynn
Based on my post below, I do not have, on hand, $2000 that I could use in case
of emergency. I am fortunate enough, however, that if I absolutely needed it,
I have ways of getting the money. (Via family mostly, but I really dont like
tapping into that unless it truly is an emergency.)

I'm also extremely thankful for a couple folks that approached me to write
some web apps (php/rails) for them. Without them those last few medical
payments would have crushed us.

My crappy situation came from double job troubles (gf and I) + dying car +
hospital visits.

We've stabilized finally and now it's time to get out of this hole and get my
life back together.

~~~
gte910h
Medical payments are the most easy to renegotiate. As long as you are paying
something continually, almost all hospitals are very understanding.

Don't beggar yourself to pay medical bills in the amount they originally ask
on the timescales they originally ask.

------
arethuza
One of the reasons the UK government bailed out the major banks here in the
last financial crisis is that they feared what would happen if the retail
banking system stopped working - if our chip-n-pin cards and ATMs suddenly
stopped working.

I did wonder if it might be sensible to keep a chunk of cash somewhere safe
for unpredictable times - having plenty of cash on tap won't help much if it
is tied up in a bank that has just stopped working.

~~~
pkamb
Does the UK not have something like FDIC Insurance?

~~~
arethuza
I meant physical cash, not a number in a computer system somewhere. I don't
use cash that often - which made me wonder about having a roll of cash stashed
somewhere.

~~~
hugh3
At the very least, it's worth having dealings with multiple banks (eg your
savings account with one and a credit card with another). It wouldn't take a
financial collapse to make your money temporarily vanish -- I mean, how long
was Playstation Network down for? It's entirely conceivable that one day a
major bank will have a _serious_ computer problem that'll shut them down for
days.

Or failing that: heck, what happens if you lose your wallet? Yeah, a few
hundred bucks (or quid) in a piggy bank isn't a bad idea.

------
jsdalton
What interested me was the cross-cultural comparison, which is only alluded to
in the CNN article but explained a bit more in depth here:
[http://blogs.wsj.com/economics/2011/05/23/nearly-half-of-
ame...](http://blogs.wsj.com/economics/2011/05/23/nearly-half-of-americans-
are-financially-fragile/)

> Meanwhile, Lusardi, Schneider and Tufano also looked at how different
> countries compare. They consulted with local partners to set the number used
> in local currency at a comparable level. “Perceived capacity to cope with an
> emergency is lowest in the U.S., U.K. and Germany, all countries in which
> 50% of households or more would probably or certainly be unable to come up
> with the emergency funds,” the authors wrote. “France and Portugal occupy an
> intermediate position; 46% of respondents in Portugal would certainly or
> probably be unable to come up with the funds as would 37% of those in
> France. The highest levels of coping capacity are found in Canada (28%
> certainly or probably unable), Netherlands (27.9%), and Italy (20%).”

~~~
darklajid
Disclaimer: Been in the UK rarely, never to the US. I don't claim to know a
lot about these places.

My impression is that it's just far less dangerous (and so a lot more
compelling?) to go without an emergency budget here in Germany, so I wonder if
this comparison misses to include the risks involved?

Sure, if you have family and a good deal of property/a mortgage to pay, you've
got a lot of incentives to stay in business. But if you're renting? Already
living in the lower middle class? No kids?

Worst case scenario: You lose your job (2-4 weeks notice) and are bankrupt at
the end of the month. You can apply for help from the state (unless you find
something else). You'll get a (60%? No idea, but something like that)
percentage of your last salary for a while, afterwards you end up on a
different and quite a lot lower benefit level, but you'll most certainly keep
a TV, keep a (reasonable) flat, get good healthcare. If you do have kids you
get (a bit) more money, education is mostly free for them.

I don't want to claim that it's all roses, but this is the worst that you
actually need to worry about in my very humble opinion. What would happen in
the UK or US if you run out of cash completely?

~~~
Mz
_What would happen in the UK or US if you run out of cash completely?_

Last I heard, homelessness is on the rise in the US and has been for some
time.

------
JCB_K
I'm definitely not in the part of my life yet when I have to worry about
money...but still I do. I actually just made my first proper budget (proper as
in not just write down what I'm expecting to spend, on the back of a napkin,
but doing it by month, comparing it to what I get per month, planning stuff.)
and you know what? It actually made me feel good.

Knowing exactly what I can spend on what is a really comforting thought. When
I'm in a shop and I see something I want, before I would have to quickly count
up the big expenses of the coming months, see what I have left, and decide if
it's worth it. Now I know exactly in what category the item is, and how much
money I have left. If I don't have enough and I feel like I really need it, I
can take a look at my budget and adjust it slightly.

On a sidenote, I'd love to start a business one day, but as long as it's not
completely necessary (and safe) I would never want investments. I'd much
rather bootstrap my product instead: the risk is much lower, and the relaxed
feeling much higher.

------
eli
Crazy. The scary part is that $2,000 isn't very much money at all. It really
would only take a very minor emergency to blow through that.

------
jhamburger
I use a Roth IRA for most of my long-term savings, can withdraw contributions
very quickly with no penalty whatsoever. My investments are riskier but even
if they tank I can still afford a $2000 type emergency. To me this makes more
sense than wasting savings in a low-yield non tax-advantaged account.

------
webXL
If you're in this situation, get yourself an account at an online bank (ING
Direct, Everbank, etc.) with an automatic savings plan, then create a
dedicated savings account for emergencies and label it _Emergency Fund_
(important!). If there's no automatic plan, just set a portion of your
paycheck to be direct deposited into that account. Just put in $50 or $100 per
paycheck.

Once the account balance gets to a level you're comfortable with, you can
divert that excess monthly savings into CDs and other safe (less-liquid)
investments, that you can periodically cash-out to build up your emergency
fund for bigger, longer emergencies. The added security will help you sleep
better. At least it did for me.

------
sliverstorm
I cheat a little. I'm still a student, so $2k is still a significant chunk of
my net worth.

My strategy to allow myself to own a decent car, a computer, etc revolves
around a credit card I secured with a very high credit limit. I have $2k I can
"borrow" against my future, and then I have a 30-day grace period in which I
can sell possessions to come up with the money. In other words, I use my
credit card and its 30-day grace period to increase the liquidity of my
possessions.

This has two caveats: 1) Keep that credit card paid off to allow use of the
grace period 2) I suffer a net loss when I resell something, but that's a
small gamble I decided to take.

------
nkassis
2,000 bucks is a lot, I know the rule of thumbs is like 3 months net salary to
keep for bad days but that's just hard for people like most on HN that are
young, trying to either bootstrap a business or have a ton of student debt.

Not sure what I would do but I think I could sell enough non-essentials to
make up the money if it was a really bad situation.

~~~
artmageddon
>I know the rule of thumbs is like 3 months net salary to keep for bad days

I was under the impression that the rule was around 6 months.. then again, I'm
talking about monthly expenses,as opposed to salary(which hopefully a person
isn't spending 3 month's worth of salary in 3 months under normal
circumstances). It probably goes up somewhat proportionally with age, if you
factor in a home / dependents. I'm in the process of looking for a home now,
so my decision on "how much home" I buy will be influenced by the notion of
wanting to keep around a year's worth of monthly expenses should I find myself
unemployed suddenly.

~~~
hugh3
My rule of thumb is "as much as you reasonably can". Always be throwing money
into your savings. First you're saving for emergencies. Then, you're saving a
deposit for a house. And finally, you're saving for retirement. There's never
a point at which you should say "Phew, I've got six months' living expenses
now, I can stop saving!"

The only point at which it's okay to stop saving is when you say "Phew, I've
got more than enough money to last me for the rest of my life regardless of
random emergencies, I think I'll retire!"

~~~
artmageddon
Well, I wouldn't suggest a person ever stop saving, I agree. However it just
depends on the savings mode that you're in at any given time. If I anticipate
a huge expense coming up (house / car), I'm going to penny pinch as much as
possible. If things are seemingly normal and I have a good amount saved up, I
might spend a little bit more of it enjoying life.

This might go beyond the depth of the article, admittedly.

------
nazgulnarsil
participating in a zero sum or negative sum game makes you, on average,
poorer. we all need to play the status game, we have to keep up appearances in
order to function smoothly with others in both the personal and business
worlds. but explicitly reason about which activities are actually delivering
the utility.

one of the ways that other people's thinking strikes me as insane (and not in
a hyperbole sense, but literally _insane_ ) is not considering the alternative
uses of any given chunk of money when making buying decisions. I watch time
and again the people around me purchase something they want _less_ for _more_
money, simply because their thinking is compartmentalized i.e. the two items
don't get thought of at the same time.

------
sebkomianos
According to wikipedia[1] the population of the USA is 308,745,538 (2010
census). Is, even the majority of those, 1,900 Americans a really low figure
to be a solid source for any argument?

~~~
hugh3
If you'd like to know the answer to this question I suggest reading a
statistics textbook. I think you'll be pleasantly surprised to hear that we
can not only answer your question but put nice precise error bars on all our
answers.

------
padmanabhan01
1900 is too low a number to sample. And there is no mention as to whether that
1900 is actually random enough. I doubt this statistic.

~~~
wazoox
For your information, about all polls are done on about 1000 people (slightly
less to slightly more). You need to poll a lot more people to reduce
significantly the statistical error level.

See <http://en.wikipedia.org/wiki/Margin_of_error>

