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Majority of Americans don't have an emergency savings account

KARA MCGUIRE • Mar 9, 2007 at 8:18 AM

Stacey Tuthill was thankful for her emergency savings account. It came in handy when Tuthill, 26, forked over $200 to bail her car out of the Minneapolis impound lot after a snow emergency recently.

In previous instances - like the time "the clamp" was put on her car - she charged emergency expenses on a credit card. She figures that the $220 clamp charge ended up costing her twice that by the time she paid it off.

Forty percent of Americans have an emergency savings account, according to a new survey commissioned by the Consumer Federation of America. Not surprisingly, just 20 percent of 18- to 24-year-olds have funds in a just-in-case account.

Tuthill admits that her account, which totals $900, is more of a save-for-a-car or go-to-Italy or get-out-of-a-bind account than one purely for emergencies.

Kristen Gillard, 23, said that throughout college "I thought of my parents as my emergency savings account." They paid for her car repairs and even covered a spring break trip she didn't plan for; although, she will pay them back for the vacation.

Now, with a job working in public relations, she is putting $25 aside from each paycheck to fund her emergency account, now at $500. She said she'll only tap this money to pay for medical expenses not covered by insurance, car repairs or fixes on her townhouse.

Let me ask you: If your 15-year-old car with 160,000 miles on it needs a repair, would you consider that an emergency? I'd argue that it's not. Same with home repairs. Fixing leaks and replacing roofs comes with homeownership territory. Repairs happen.

Instead of saving in an emergency account for such expenses, why not put away a certain dollar amount every month - until you have a couple grand to spend on what you drive and another couple grand to spend on where you dwell?

In my mind, an emergency is a job loss, or two missing front teeth after joining a curling league. But replacing the brakes on the family rustmobile? No.

That said, saving something, whatever amount, is better than not saving at all. I'm simply saying that as your cushion grows, consider splitting it into infrequent-but-expected expenses, emergency savings, and a vacation fund.

Otherwise, you could deplete it on home improvements or tropical vacations before you know it.

I'm not there yet either. It's a move my family is discussing after a decision to buy a kitchen island exposed our unfocused liquid savings accounts. Read all about it at www.startribune.com/kablog. Part of the reason we've yet to create different accounts for different purposes is because we haven't settled on how big an emergency fund we need. Experts suggest having living expenses for three to six months. But for us, that feels like too much money sitting around waiting for something bad to happen.

Many Americans seem to agree. Nearly half of those surveyed had less than $2,000 on hand, a sum that probably doesn't cover rent (or mortgage), food, and payments on a couple of loans for most of us. Still, an overwhelming majority believe their emergency savings will cover unexpected happenings for the year.

My guess is that a lot of us - especially young people with a list of competing expenses - can't sock away funds for retirement and have a hefty emergency account while also staying current on expenses. Another handful probably questions whether a half a year's worth of savings is necessary in an era of easy, low-interest credit available for those who have shown they can use it responsibly. But ask anyone who has spiraled into credit-card debt or gone as far as bankruptcy if that strategy worked for them.

One thing I know for sure. If you can afford cable, you can afford a cash cushion. Yet the Consumer Federation survey showed that 82 percent of adults have cable or a satellite dish, twice the number who have an emergency account. Get with the program.

Kara McGuire writes about personal finance. Write to her at kara@startribune.com or at the Star Tribune, 425 Portland Ave., Minneapolis, Minn. 55488.

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