Households with limited income and wealth often struggle to access the financial liquidity needed to address unexpected expenses or income drops. Emergency savings can act as form of insurance against such economic shocks and reduce the risk of hardships that influence family wellbeing. Prior research has established that threshold amounts of liquid assets can reduce the risk of economic hardship. This study used a measure of self-reported emergency saving behavior to examine whether households who reported saving for emergencies were less likely to experience subsequent economic hardships in a longitudinal sample of households in disadvantaged neighborhoods from the Annie E. Casey Foundation’s Making Connections project. Results across a range of regression models suggest that households who saved for emergencies experienced slightly less overall hardship and were less likely to report several specific hardships, such as food insecurity and having a phone disconnected, three years later. This study supports the idea that small, unrestricted savings may play a protective role for low-income households.
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The Making Connections project included a total of ten sites; however, three sites were excluded from this analysis because there was not a third wave of data collection. The excluded site cities were Hartford, Connecticut; Milwaukee, Wisconsin; and Oakland, California.
A measure of whether an item had been repossessed due to non-payment was not used in this analysis because that variable was only collected Wave 1 and Wave 2 of the Making Connections survey.
The term Black represents respondents who identified as Black and respondents who identified as African American.
Random and fixed-effect models were also estimated with a Poisson regression that accounts for the count nature of the total hardship dependent variable. Results for the Piosion regression closely resemble the presented coefficients. Tables are not shown but available upon request.
The mean variance inflation factor (VIF) for the complete model was 3.83 suggesting multicollinearity among the independent variables did not pose a significant problem.
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I am grateful to Lawrence Berger, J. Michael Collins, Ted Gerber, Erik Hembre, and members of the Household Finance Scholars at the University of Wisconsin-Madison for helpful discussions and feedback, and to the anonymous reviewers for their thoughtful comments. The staff at the NORC which houses the Making Connections data provided excellent technical support. All remaining errors are my own.
Conflicts of interest
This manuscript contains secondary data analysis of survey data collected by the NORC at the University of Chicago. The survey research was overseen and approved by the NORC’s Institutional Review Board.