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piggybank_mediumThe fact that the personal savings rate is close to 7% is good news, but too many people are still unprepared for a major financial setback like a job loss.

A survey released yesterday by HSBC Bank USA found:

  • 38% of respondents didn’t have even one month’s worth of expenses saved
  • 61% could live on their savings for 3 months or less
  • 51% of respondents with household incomes of less than $50,000 had less than one months’ expenses saved
  • 29% of those who earned $100,000 or more had less than 3 months saved.

HSBC’s findings mesh with those of previous researchers who found only about one third of U.S. households had enough liquid savings to sustain them for three months or more.

Three months’ worth is a good goal in normal times, but in recessions, when the risk of job loss spikes, you may want more. The median duration of unemployment is now 14.7 weeks (nearly four months), up from a duration of 8.9 weeks (a little over two months) in July 2008. One third have been without a job for 27 weeks or more.

If you have toxic debt such as credit card debt or aren’t saving enough for retirement, taking care of those issues usually should take priority over building up your emergency fund. As soon as you’re able, though, stashing aside extra cash is a smart idea.

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You’re right on, of course.

For my tastes, there’s been a bit too much excitement about the increase in the national saving rate. As you point out, our total savings are still quite weak. Furthermore, the study’s numbers represent only averages. The implication is quite clear: a substantial portion of American households still aren’t saving anything and, even among those who are, many remain perilously close to significant financial problems.