Academic journal article Journal of Financial Counseling and Planning

A Fragile Balance: Emergency Savings and Liquid Resources for Low-Income Consumers

Academic journal article Journal of Financial Counseling and Planning

A Fragile Balance: Emergency Savings and Liquid Resources for Low-Income Consumers

Article excerpt

A Fragile Balance: Emergency Savings and Liquid Resources for Low-Income Consumers Editor: J. Michael Collins Publisher: Palgrave Macmillan ISBN # 978-1-137-48781-0

A Fragile Balance is a collection of 14 papers about the financial challenges experienced by low- and moderate-income (LMI) Americans and various demonstration programs that have been developed to motivate them to save. The chapter authors have a variety of backgrounds including academics, information technology experts, and asset development program directors. A Fragile Balance was edited by J. Michael Collins, faculty director of the Center for Financial Security (CFS) at the University of Wisconsin (UW)-Madison. Collins, who teaches consumer decision-making, also wrote two of the chapters. The book is the culmination of years of research and public policy advocacy by the CFS to promote innovative efforts to build the emergency savings of vulnerable populations.

A Fragile Balance is 219 pages in length. The first three chapters provide background about America's LMI households and their financial challenges. The next ten chapters describe innovative motivational savings programs at various stages of implementation and assessment. Chapter 14 wraps the book up nicely with a summary of key themes and conclusions. This very comprehensive and insightful edited volume was the product of a call for papers and subsequent Salon that brought together the authors of the 14 chapters and other experts. Key collaborators were the CFS at UW-Madison, the New America Foundation, and JP Morgan Chase. An advisory committee of several dozen individuals also helped shape what became known as the Emergency Savings Project.

Chapter 1, Paying for the Unexpected: Making the Case for a New Generation of Strategies to Boost Emergency Savings, Affording Contingencies, and Liquid Resources for Low-Income Families, by J. Michael Collins, notes that low-income households' accumulation of liquid savings is a growing issue that "has not yet attracted significant attention in the United States" (p.1). A savings reserve of three months' expenses is a big hurdle for lower-income households for whom "just making ends meet is a challenge" (p. 2). The chapter includes research findings about precautionary savings and the financial vulnerability of America's lowest income quintile. It also discusses the measurement of emergency savings, barriers to emergency savings (e.g., behavioral finance biases), and credit market alternatives for liquidity (e.g., payday and pawn loans). Collins notes that there are "no specific policies or programs to support the development of emergency savings" (p. 10) and the issue is "fertile ground" for private sector entrepreneurs and social innovators.

In Chapter 2, Liquid Savings Patterns and Credit Usage among the Poor, by CFS Senior Research Associate Leah Gjertson, the term "liquid asset poor" is introduced to describe households without liquid savings. The chapter summarizes research on emergency fund adequacy and demographic characteristics of savers. Applicable findings from both the 2010 Survey of Consumer Finances and 2012 National Financial Capability Study are summarized, as well as limitations of various emergency fund measures, which are not fully standardized. Gjertson also notes that an amount equal to one month's housing expense (rent or mortgage) may be a realistic emergency fund target for lower-income households because "missed housing payments can have dramatic consequences on housing stability, especially for renters" (p. 32). Various measures of emergency fund adequacy are discussed such as the ability to acquire $2,000 in 30 days. A startling, but not surprising, statistic cited in the chapter is that "half of households with incomes under $20,000 have less than $450 in savings accounts" (p. 33).

Upside Down: The Failure of Federal Tax Policies to Support Emergency Savings is the title of Chapter 3 by Ezra Levin of the Corporation for Enterprise Development. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.