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Your Money Adviser

The Dangerous State of Americans’ Savings

MORE than half of American households have less than one month of income available in readily accessible savings to use in case of an emergency, a new report from the Pew Charitable Trusts finds.

Many financial advisers recommend that families have a savings account holding three to six months’ income, in case of a job loss or an unexpected major expense. But regardless of income level, the report found, most Americans lack the recommended level of savings.

Even if they tapped all available resources, including assets that can be costly to tap, like retirement accounts and investments, the typical middle-income family can replace just four months of income, the report found.

The report, “The Precarious State of Family Balance Sheets,” found that even though the economy has recovered from the Great Recession, many households remain financially insecure. Most families, the report said, “feel vulnerable and stressed, and could not withstand a serious financial emergency.”

The position of lower-income households is particularly precarious, the report found, with less than two weeks’ income available in their savings and checking accounts and cash on hand. Such families generally have less access to credit than higher earners, so have fewer options during a financial crisis.

The report drew from a variety of economic data sources, including surveys from the United States Census Bureau and the University of Michigan.

Slower income growth in the last decade may have contributed to inadequate savings levels, researchers said. But some trends described in the report, they said, aren’t new. For instance, the report found substantial fluctuation in family income is the norm; in any given two-year period, nearly half of households experience a change in income of more than 25 percent — whether up or down. Such volatility, which has been fairly constant since 1979, “likely contributes to families’ inability to build a financial cushion,” said Erin Currier, director of Pew’s financial security and mobility project, in a call discussing the findings with reporters.

The report and additional research that is underway are aimed at achieving a broader understanding of household finances that will help policy makers create programs that promote “asset accumulation.”

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Personal financial experts say there are ways to build savings, even with limited income. “The hardest part is the psychological side,” said Daniel Boylan, an instructor of finance at Ball State University in Muncie, Ind. “The idea of saving six months of income sounds impossible.”

Mr. Boylan advises setting an initial goal of one month’s pay, then moving on to two months’ after the first goal is attained, then three months’, and so on. “Take it one step at a time,” he said.

J. Michael Collins, director of the Center for Financial Security at the University of Wisconsin-Madison, advises automating savings by having a fixed amount — even if it’s a very small amount — regularly transferred from your checking account to a savings account. “If it’s up to you to decide every month if you want to do it and how much,” he said, “it won’t happen.”

Jonathan Morduch, a professor of public policy and economics at New York University who has studied the financial habits of low- and moderate-income families, said even lower-income families saved, but they tended to put aside money for specific items they knew they would need in the next two to three months — say, back-to-school clothes or holiday gifts — rather than building reserves for an emergency that may or may not happen.

For some people, getting started is the biggest hurdle. Christina Mele, 50, who works for a temp agency in Virginia Beach, Va., said she had never had a savings account until she started saving for an emergency fund last year, after enrolling in the Bank On education program sponsored by the City of Virginia Beach, local banks and community groups.

She set up a savings account at a credit union and has 5 percent of her paycheck automatically deposited to the account. She declined an A.T.M. card so that she couldn’t easily get to the money. She has saved $600 toward her goal of $1,000. “If you have to physically walk into a branch to withdraw the money,” she said, “you’ll think twice.”

Here are some questions about building emergency savings:

Where should emergency savings be kept?

An emergency savings account should be accessible — since the point is to be able to get the money quickly if you need it — but not too accessible. Using a bank separate from where you have a checking account helps. Enlisting a trusted friend or family member as a “money guard” can help you stay on track.

Mr. Morduch said one young man he encountered in his research was trying to save for a deposit to get his own apartment, so he gave his cash to his mother to keep in her account, even though he had his own savings account.

It’s tax season, so what about saving my income tax refund?

Putting at least part of a tax refund, or a bonus, into a savings account can be a relatively painless way to start an emergency fund, Mr. Morduch noted. The Internal Revenue Service lets taxpayers split their refund for direct deposit into as many as three different accounts; to do so, you’ll need to file Form 8888 with your return.

Are there tools available that can help promote savings?

The America Saves campaign encourages consumers to sign a pledge, which helps them make a commitment to save, and to sign up on its website to receive texts with savings reminders and tips.

Email: yourmoneyadviser.com

A version of this article appears in print on  , Section B, Page 4 of the New York edition with the headline: The Dangerous State of Americans’ Savings. Order Reprints | Today’s Paper | Subscribe

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