Many U.S. households have lost a job and/or income due to the COVID-19 pandemic. These types of losses can influence an individual’s level of life satisfaction and thus, their overall health and well-being. One possible strategy to mitigate the impacts of economic volatility for U.S. individuals and households is to build a rainy-day fund. A rainy-day fund, or emergency savings, can serve as a financial safety net for individuals and/or households to fall back on during times of crisis. However, many people in the U.S. still struggle to build emergency savings. In this blog post, we explore the potential moderating effect of emergency savings on life satisfaction among households who have lost income and/or employment due to COVID-19.
Recent data from the Socioeconomic Impacts of COVID-19 Survey shows that in August and September 2020, 31% of surveyed participants reported losing income and/or a job due to COVID-19. Moreover, 33% of participants in our sample report not having emergency savings. This number is higher among participants whose households have lost a job and/or income due to COVID-19. For example, 38% of participants whose households have lost a job and/or income due to COVID-19 do not have emergency savings, as compared to just 30% of participants whose households have not lost a job and/or income.
Figure 1. COVID-19 related job loss, by emergency savings (ES)
A lack of emergency savings for households that have lost a job and/or income due to COVID-19 could increase their stress levels and, by making it harder to afford essentials, negatively impact their overall life satisfaction. To measure life satisfaction, we asked participants to imagine life as a ladder with steps ranging from 0 to 10, and to tell us which step they felt they were currently on. Not surprisingly, participants whose households have lost a job and/or income due to COVID-19 but reported having emergency savings were much more likely to report being on a “higher step” than those who did not (Figure 2).
Figure 2. Current Life Satisfaction, by emergency savings (ES) among those who’ve lost a job/income due to COVID-19
How do emergency savings predict life satisfaction now and in the future?
We ran two multiple linear regression models to see whether emergency savings could predict current and future life satisfaction among participants whose households have lost income and/or a job due to COVID-19. We included emergency savings, job loss, baseline life satisfaction, and a moderating variable that interacted job loss with emergency savings to measure the impact on projected life satisfaction now and after five years. In both models, having emergency savings moderated the association between job loss and predicted life satisfaction (Figures 3 & 4). This meant that participants who lost their job but have emergency savings were more likely to have a positive outlook on their life satisfaction now after five years, as compared to those who did not have emergency savings. While this mediation was not statistically significant, it does provide a foundation for future research to explain the impact of emergency savings on current and predicted life satisfaction.
Figure 3. Predicted current life satisfaction, by job/income loss and emergency savings
Figure 4. Predicted future life satisfaction, by emergency savings
Although statistically insignificant, these findings demonstrate the potential impact that emergency savings can have on U.S. households in financial distress. Having a financial cushion during times of crisis is essential for individuals and households to stay afloat. Federal, state, and local governments can support their communities through funding various initiatives like individual development accounts or periodic stimulus payments. By providing pathways for individuals and households to save and build their own financial safety nets, governments can prioritize the long-term health and wellbeing of their community members. If policymakers want to create a pathway for sustainable economic recovery, the financial security and wellness of U.S. individuals and households must be taken seriously.