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Emergency savings are key to combating financial fragility – but Americans need more help

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The coronavirus pandemic is slamming the most vulnerable Americans, pushing many into financially precarious situations.

The best way to combat the financial fragility that's brought on by such an event is helping Americans build and maintain an emergency savings fund, according to experts.

But most people need the support of the government and corporations to make that happen, they said.

"The differences between the haves and the have-nots with respect to these measures of financial fragility have just blown out," said Peter Tufano, dean at University of Oxford's Saïd Business School, during a Wednesday webinar hosted by the Global Financial Literacy Excellence Center. "We don't see any natural break in this unless something happens."

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The data is actually dire.

Even before the coronavirus pandemic, nearly 40% of Americans didn't have enough saved to pay for an unexpected $400 expense, according to a survey from the Federal Reserve. Since the pandemic hit the U.S., millions have been pushed further to the edge — more than 20 million are collecting unemployment benefits, millions are experiencing food insecurity and more are at risk of losing housing.

In addition, the pandemic has widened inequality in the U.S. For the upper class, the recovery is well underway, while those on the other end of the income spectrum continue to suffer.

"What's even more troubling is the divergence in racial inequity in the U.S. right now," said Billy Hensley, president and CEO of the National Endowment for Financial Education, adding that families of color have made more financial adjustments than their White counterparts.

As many as 86% of Black families and 74% of Hispanic families had adjusted their personal finances due to Covid, according to an October survey from NEFE. In comparison, 70% of White families had done the same, the survey showed.

Another stimulus bill is needed now

In the short-term, the solution to lessening financial fragility is clear, according to Tufano.

"The one thing that can be done quickly is we hope that the government — the U.S. government — will find some way to deal in Washington in the way they had with the CARES Act," he said.

In the early months of the pandemic, the federal CARES Act gave direct $1,200 stimulus checks to many Americans and expanded unemployment benefits to include an additional $600 per week, money that helped people boost savings, stay current on rent and other bills and more. That kept the gap between the employed and unemployed small and stable, according to Tufano.

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When that extra money ran out, the rift between those with and without jobs started to widen rapidly, according to a paper published by GFLEC in October.

It's unclear if further stimulus will come soon, as Congress has failed to reach a deal after months of negotiations. Even if a deal is reached soon, millions of Americans will fall off a cliff at the end of the year when two unemployment programs and other protections expire.

Long-term changes need to be made

Of course, another round of coronavirus relief would only help in the short-term. Ensuring that Americans have emergency savings to withstand crises over the long-term means removing barriers to financial planning, policy changes addressing issues such as unequal pay and better education, experts say.

"You can be financially literate but if you don't have access to a quality job or a fair paying job, then what you know can't be applied," Hensley said.

He also added that widespread personal finance education is a step in the right direction. In the U.S. currently, only half of all states require a personal finance course before graduation, and students of color are less likely than their White counterparts to have that education.

In addition, corporations should extend more aid in boosting emergency funds, such as including them as a benefit similar to retirement savings.

"These are structural problems that need to be dealt with," Tufano said.

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