Saving even a little bit of money can help a family better handle a financial disruption like a job loss. Plus, saving has a benefit for the local governments where families live, according to a study released Thursday by the Urban Institute, a Washington, D.C.-based economic think tank.
The study, "Thriving Residents, Thriving Cities: Family Financial Security Matters for Cities," found that households with even a small amount of non-retirement savings are less likely to be evicted, miss a housing or utility payment and are less likely to receive public benefits when they have a financial disruption like a job loss or inability to work because of health.
Caroline Ratcliffe, a senior fellow at the Urban Institute and one of the authors of the study, said authors wanted to connect the data dots that suggested a city's financial health is connected to its residents' financial health, and to examine how having a small amount of savings can help a family through a financial disruption - defined as an involuntary job loss, a health-related work limitation or a drop in income of 50 percent or more. The study examined census data from 42,000 households from 2009 to 2012.
A family that has as little as $250 to $749 in savings can better weather a job loss or another disruption than a family who has no savings, according to the study.
"Small levels of savings have an advantage," Ratcliffe said.
Specifically, the study found that 21.1 percent of families with $249 or less in savings missed a house payment during an income disruption, while 15.2 percent of families with $250 to $749 missed a house payment following a disruption. Families with $1 to $249 in savings were also more likely to miss a utility payment after a disruption than the families with $250 to $749 in savings.
Many families don't have any savings to help them get through such a disruption. The study found that one in four families have no non-retirement savings, four in 10 families have less than $750 and about six in 10 have less than $5,000.
Income disruptions are common. In a year, about a quarter of families in the study experienced one of the disruptions.
Ratcliffe said people might be discouraged at suggestions that they save three months of expenses. But the study shows that people should get started saving even if they can only save a little bit, she said.
Having residents who save money can be good for a city's bottom line, the report says.
Families who consistently pay their mortgage or rent are more likely to pay their property taxes, which has an impact on local government budgets.
For example, Detroit's uncollected property taxes in 2015 added up to more than $100 million, and the city had more than 30,000 properties for auction due to tax foreclosure, according to the study. Demolishing abandoned houses isn't cheap either; in Detroit, it can cost up to $15,000 per house.
Evictions may affect local schools budgets, too, the authors suggest.
"Homelessness among children can create disruptions in the child's education as students change schools during the school year, which can have long-term implications for children's educational success," the report says.
City revenues can suffer when residents don't pay their city-owned utilities, the report points out. Families that are financially healthy are in a better position to go through income disruptions without needing to accept public benefits, the report says.
Low-income families who have savings are better able to handle financial disruptions than middle-income families who have no savings, the report says.
Ratcliffe said families can prepare for a job loss or other disruption by setting up accounts that automatically put money into savings during each month.
City and local governments can also encourage residents to save money. One way to do that is to incorporate financial capacity programs into other public programs such as workforce training and tax preparation programs. A workforce training program or tax preparation programs could include information about saving money or how to start a savings account, she said.
"In this case it provides an opportunity to meet families where they are and address multiple needs and put them on a good financial path," she said.
D.F. Mock, senior vice president of United Bank in Charleston, said saving money is important at all ages.
"The earlier you begin the better," Mock said. "It's important to educate and develop practices very early."
Even a small amount is a good start, and over time the savings can grow significantly, he said.
Mock said it's important, especially for young professionals, to know about their employers' 401K retirement plan options. They can also set up their own IRA (individual retirement account) with a broker.
The best way to save is to budget your money, Mock said. There are all sort of apps and tools that help a person track how much they spend, he said. Some even send alerts when spending is out of line with their budget.
An important part of budgeting and saving is to live within your means, Mock said.
"I think that's important, and a budget helps you understand where you spend your money," Mock said.
To read the full report, visit the website for the Urban Institute.
Reach Lori Kersey at
lori.kersey@wvgazettemail.com,
304-348-1240 or follow
@LoriKerseyWV on Twitter.
