Einat Steklov, founder of Kashable
A few days after the longest government shutdown in U.S. history ended, a Prudential Financial survey of federal employees exposed the “financial fragility” of a majority of U.S. workers. According to the survey, 49% of respondents fell behind on bills, 27% missed a mortgage or rent payment, and 23% cut back spending on health or medical expenses for themselves or family members as a result of the shutdown.
While the situation was clearly dire for furloughed or unpaid federal workers, the impact of the shutdown shed light on the current American Savings Dilemma: about 78% of all American workers are living paycheck-to-paycheck, and 64% don’t have $1,000 to cover an emergency expense.
Federal workers entered the shutdown more likely to have emergency savings than the general population. 61% of respondents said they entered the shutdown with $1,000 or more in emergency savings, compared with just 46% of the general population.
Even with a leg up on the general population, 62% of survey respondents reported burning through all or most of their emergency savings and 49% still fell behind on paying bills as a result of the shutdown. Federal workers were also forced to take additional measures to make ends meet, such as borrowing from retirement, utilizing a food bank, or reducing care services for loved ones.
Borrowing from retirement was one of the most common methods used to bridge the gap in pay. There was a 34% jump in the number of hardship withdrawals in the two and 1/2 weeks after Christmas when compared to the same period last year, according to Federal Retirement Thrift Investment Board data. This is also indicative of an alarming trend for many Americans: sacrificing future investments to make ends meet. A Wharton School study found that about 40% of 401(k) savers borrow from their plan in a given five-year period.
The fact that federal workers, who were more likely to have emergency savings and have access to relatively strong benefits packages, still had to resort to extreme measures to bridge an income gap of two paychecks should serve as a wake-up call for the entire U.S. workforce:
You must take steps today to ensure you are prepared to handle a financial emergency or gap in pay without sacrificing daily necessities or your future.
Most financial advisers recommend building an emergency savings fund to cover at least three months of expenses. Unfortunately, many federal employees will have to start from scratch after the recent shutdown, and may be left unprotected if another shutdown or personal financial emergency occurs.
In either scenario, federal employees should be aware that they have access to a low-cost alternative to borrowing from retirement, credit cards, predatory lenders, or missing payments.
Einat Steklov is founder of Kashable, a financial wellness company that brings an innovative approach to consumer lending. Kashable provides working Americans with access to socially responsible, low-cost credit to help bridge the financial gap caused by personal emergencies and other times of hardship.
For more information, visit www.kashable.com.