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BMO Harris Bank Study: One Third of American Parents Have Not Saved for a Family Financial Emergency
|By Marketwired .
|May 22, 2014 06:00 AM EDT
CHICAGO, IL -- (Marketwired) -- 05/22/14 --
- Parents have an average of nearly $10,000 set aside
- Experts suggest having three to six months pre-tax income saved
- Average out-of-pocket medical costs for a child's first year is $1,297
- BMO Harris Bank offers tips and online tools for future and new parents to manage family expenses
A new study released today by BMO Harris Bank found that while parents of young children have on average, $9,737 set aside for a financial emergency, one in three (32 percent) have nothing put aside. Americans who are planning to have a child in the next five years have, on average, $5,523 set aside, but 30 percent have saved nothing at all.
The study, which surveyed parents expecting to have a child in the next five years or with children less than 10 years old, revealed:
- Eleven percent of current parents have less than $1,000 in emergency savings, similar to 12 percent of future parents
- Of those with savings, most have savings in the range of $1,000 - $9,999 -- one third of current parents and 37 percent of future parents
- A quarter (26 percent) of current parents and 15 percent of future parents have upwards of $10,000 saved
"The challenge with saving for a financial emergency can often be that until it's right in front of you, you may be thinking only about the more immediate costs of raising a family. As a framework to start out, parents should think about having between three and six months of their pre-tax income set aside," said Alex Dousmanis-Curtis, Head, Retail Banking, BMO Harris Bank. "While our survey tells us there is some room for improvement, it's encouraging to see that the majority of parents are on the right track."
"Consumers are currently saving about 4.5 percent of their after-tax incomes, in line with the average of the past decade. While this is below the more than 6 percent savings rate in the wake of the recession -- as households worked hard to repair their balance sheets -- it remains well above the lows of around 2.5 percent during the housing bubble period," said Michael Gregory, Head of U.S. Economics, BMO Capital Markets.
Savings for Medical Costs Need Regular Check-Ups Too
The survey also examined the savings needed to cover medical costs. A majority (90 percent) of parents cited the cost of healthcare as a financial concern. Parents said they spend an average of $9,676 in medical expenses during the child's first year, with most covered by insurance. The average out-of-pocket medical expense for a child's first year was $1,297, but many parents (39 percent) didn't know how much they spent.
The survey showed what aspects of healthcare parents and soon-to-be parents are most concerned about:
Healthcare Cost Parents Future Parents
Medical Insurance 66% 73%
Hospital Bills 74% 61%
Prescription Drugs 49% 61%
Regular doctor check-ups 47% 64%
Vaccines/Inoculations 42% 61%
Hidden Costs: Expect the Unexpected
Parents were also asked about other 'hidden costs' associated with a child, and found that the most common costs were needing to buy a car or upgrade to a larger vehicle (49 percent), increased utility/energy bills (46 percent) and taking time off work (43 percent). Other findings include:
- Forty-four percent of parents under 30 cite needing to buy a house or move to a larger house, compared to 34 percent in their 30s, and 24 percent over 40
- Higher vacation expenses were a 'hidden cost' for 38 percent of parents in their 30s, versus 20 percent in their 20s and 27 percent over 40
- Those over 40 are most likely to report increased utility/energy bills (51 percent), compared to 50 percent in their 30s and 31 percent under 30
"As the economy continues to improve this year, particularly on the jobs front, it will help fuel personal income growth. This, along with a steady 4.5 percent savings rate, will result in rainy day savings building up more quickly, but this should not be a call to reduce the savings rate. It would be prudent to keep saving at the same pace, redirecting the flow to help finance future big-ticket outlays, paying down debt or saving for retirement," added Mr. Gregory.
For more information about planning for the next Life Stage, visit bmoharris.com/yourfinanciallife
Survey results cited in this release are from a Pollara survey commissioned by BMO Harris Bank with an online sample of 1,500 Americans conducted between November 22nd and 29th, 2013. This includes 993 interviews with parents of children under 10 and 507 interviews with Americans who expect to have their first child in the next 5 years. The margin of error for a probability sample of this size is +/- 2.5 percent, 19 times out of 20.
About BMO Harris Bank
BMO Harris Bank provides a broad range of personal banking products and solutions through more than 600 branches and approximately 1,300 ATMs in Illinois, Wisconsin, Indiana, Kansas, Missouri, Minnesota, Arizona and Florida. BMO Harris Bank's commercial banking team provides a combination of sector expertise, local knowledge and mid-market focus throughout the U.S. For more information about BMO Harris Bank, go to the company fact sheet. Banking products and services are provided by BMO Harris Bank N.A. and are subject to bank or credit approval. BMO Harris Bank® is a trade name used by BMO Harris Bank N.A. Member FDIC. BMO Harris Bank is part of BMO Financial Group, a North American financial organization with approximately 1,600 branches, and CDN $593 billion in assets (as of January 31, 2014).
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