NEW YORK (MainStreet) Just over one in four (26%) of Americans does not have any emergency savings, according to a new Bankrate.com report. While it is recommended that consumers have six months' worth of expenses saved, 67% reported having saved less than that amount.
Even worse, half of the respondents have saved less than three months' expenses. The percentage of Americans with at least three months' expenses in savings declined from 45% last year to just 40% this year.
"Americans continue to show a stunning lack of progress in accumulating sufficient emergency savings," said Greg McBride, CFA, Bankrate.com's chief financial analyst. "Even among the highest-income households - those with annual income of $75,000 or above - fewer than half or 46% currently have a six-month savings cushion."
People between the ages of 30 and 49 are more likely than any other age group to have no emergency savings since they are faced with rising household expenses such as mortgages, student loans and car payments while their wages have stagnated, he said.
"You have to pay yourself first," McBride said. "Don't wait until the end of the month. Set up a direct deposit to go into a dedicated savings account so you get your savings accomplished right off the bat. It also forces you to live off less than you make, which is the essence of building wealth over time."
The survey found that 18- to 30-year-olds are the most likely to have up to five months' expenses saved up since they might have the benefit of lower expenses due to having roommates, living with their parents or being students, he said.
"You have to give credit where credit is due," McBride said. "They have had a front row seat to the recession. They have learned the importance of putting some money away and have followed through. That bodes well for their futures."
Some people lack having an emergency savings fund now because they were forced to draw down on it at one point during the recession, periods of unemployment or income reduction, he said.
"Getting there requires the discipline of saving on a regular basis," McBride said. "Americans have never been good savers. The key is to be in the habit of saving and establishing that habit is a big first step in that right direction."
Bankrate.com also announced that its Financial Security Index rebounded to 101.5, which indicates improvement over one year ago. Job security bounced back from a negative reading last month.
Currently, 24% of Americans feel more secure in their jobs than they did 12 months ago versus 17% who feel less secure. May's bout of employment insecurity now stands out as an anomaly amid upbeat attitudes on job security in six of the past seven months.
Americans' comfort level with debt also recovered after two months of discomfort. Some 23% are more comfortable than they were in June 2013, and 20% said they are less comfortable.
Among the Financial Security Index's other three components, net worth and overall financial situation are areas of strength, particularly as the stock market continues setting new record highs. Savings remains a weak spot and has been in negative territory every month since polling began in December 2010.
Daniella DiMartino, a 26-year-old account executive at a public relations firm in Westchester, N.Y., said she allocates $100 each month from her paycheck to sock away in a higher-yielding savings account for emergencies. Since her start-up firm does not offer a 401(k) plan yet, DiMartino feels it is her job to ensure she has both emergency and retirement funds in the future.
"Having savings is so important," she said. "I didn't have a single cent saved prior to graduating from college."
Deanna Smith, 28, a junior art director at Colangelo in Darien, Conn., said Millennials have a tougher time establishing emergency savings.
"With rising costs, student loans and settling for lower salaries, our generation needs to save more money for homes, children, vacations and life experiences," she said. "Emergencies are a secondary thought. It is important but most people in our generation do not have that opportunity."
Until a "terrible" roommate situation about 18 months occurred, Zack Durkin, 27, an operations analyst in employment for the State of New York Metropolitan Transportation Authority, said he didn't have an emergency fund. He was forced to break his lease early and move out within days of the incident.
The incident was a "wake up call to always have cash stored just in case," he said. Now he saves when he can, so that if anything pops up, he has a small cushion and plans to add to it for future situations.
Investors should have three to six months of monthly expenses in a savings account or money market fund, said Kimberly Clouse, chief client advocate at Covestor, an online marketplace for investing with offices in Boston and London.
"Everyone should create an emergency fund and it's even more critical for entrepreneurs and other earners who may not have a steady income," she said.
An emergency fund allows you to use cash to pay for those random expenses or emergencies that arise in your financial life, instead of creating more debt or tapping into long-term investments, Clouse said.
"You want to be able to tap into these funds easily, but you don't want to tap them unless you really need to," she said.
While investors may be reluctant to hold cash in a low-rate environment when their purchasing power can be eroded by inflation, cash has other uses aside from income. It also gives investors a reserve of buying power and additional flexibility, Clouse said.
--Written by Ellen Chang for MainStreet