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Americans' Savings Offer Little Shelter For Rainy Day

For nearly two years, the U.S. economy has been struggling with a recession brought on by excessive borrowing, both for home mortgages and consumer purchases. Economists say many people have learned a lesson; the personal savings rate is inching back up as more Americans embrace the "new frugality."

Still, half of U.S. households don't have even modest savings, according to a new study conducted by TNS Group, a market researcher, with help from professors at the Harvard Business School and Dartmouth College.

The researchers conducted a survey to see how many households could round up $2,000 within 30 days to cope with an emergency, such as having a car breakdown or needing a major home repair. About half said that even if they turned to relatives for help, they could not come up with $2,000 for a "rainy day," the study found.

Earlier in this decade, consumers had easier access to credit to help with emergencies. For example, rising home values made it relatively easy to get a home equity line of credit to tap in case of an unexpected expense. But with real estate values down sharply, home-equity lines have dried up for many. At the same time, credit-card interest rates have soared.

The tougher credit environment makes it even more important for households to have their own savings to handle emergencies, according to one of the researchers, Dartmouth economics professor Annamaria Lusardi. The personal savings rate has crept back up from zero to about 3 to 4 percent, but is still about half the norm of a generation ago.

Lusardi says most Americans continue to live with what she calls "financial fragility." That is, families may be living a middle-class lifestyle, but are one job loss, or even one car breakdown, away from tumbling into real financial trouble.

She said many consumers don't study the interest rate and fee terms of their credit cards, and suffer from "financial illiteracy." That is, they don't realize just how expensive it is to borrow money — and how important it is to have cash available for unexpected expenses.

She recommends that families save in a "slow and steady" manner, always setting aside some cash each week to create a "rainy day" fund of at least $2,000.

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Marilyn Geewax
Marilyn Geewax is a contributor to NPR.
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