Building up an emergency fund is an important step towards financial security. It means that you are no longer living paycheck to paycheck and you have a buffer in case you are faced with a large, unexpected expense. Unfortunately, most Americans do not have an emergency fund. In fact, most people do not even have $1,000 in a savings account, according to a recent GOBankingRates survey. This survey investigated what percent of people have $0 in a savings account, $1-1000, or more than $1,000 on a state-by-state basis. I used this data to generate a geographical heat map, focusing on the percent with more than $1,000. There is also a table below with the percentages by state for those curious.
Percent Of Residents With More Than $1,000 In Savings
Here you can see the heat map comparing states by the percent of residents with more than $1,000 in savings. Overall, the data paints a pretty dismal picture of Americans’ finances. In only four states did at least 50% of residents have more than $1,000 in a savings account: Connecticut, Nebraska, Delaware, and Vermont. Just four more were above 40%: Maryland, New Jersey, Michigan, and Utah. The majority of states had between 20-40% of residents with more than $1,000 in savings. There were 14 states between 30-40% and 24 between 20-30%. And at the bottom were four states with less than 20% of residents with more than $1,000: Alabama, Mississippi, Wyoming, and at the very bottom with just 6%, New Mexico.
There does not seem to be a very clear regional trend to which states were doing better than others. In general, the Northeast had a number of states with better savings rates, with the exception of Rhode Island, which was one of the worst in the country. States in the Sun Belt generally had lower savings rates, again with some exceptions.
Average Annual Potential Savings
I was curious how savings rates compared to people’s potential ability to save in each state, so I decided to calculate average annual potential savings by subtracting the living wage in each state from the average pre-tax income. The living wage is the minimum annual salary needed to afford basic necessities such as housing, food, clothing, health insurance, childcare, etc. as determined by an MIT calculator created by Dr. Amy K. Glasmeier. Note that I used the average pre-tax income for an individual in each state while the living wage was for a family of two adults and one child. This means that the heat map above displays the average annual potential savings of a family of three with one wage earner.
Overall, 52% of states had positive potential savings. This means that in 48% of states, a family of three with one wage earner would be losing money every year on average without even taking into account nonessential purchases. Similar to the previous heat map, potential savings were generally higher in the Northeast and lower in the South. The highest potential savings was in Connecticut at $15,059. This was followed by Wyoming, New Jersey, and Massachusetts, which all had potential savings over $10,000 per year. At the other end, Mississippi had the worst potential savings of -$8,090, followed closely by Arizona, New Mexico, and Hawaii, which all had potential savings below -$6,000 per year.
Savings Compared To Average Annual Potential Savings
Since it looked like there were some similarities between potential savings and actual savings, I decided to overlay an outline of the top 10 states for potential savings and the bottom 10 states for potential savings on the heat map showing percent of residents with more than $1,000 in savings accounts. As you can see, there are some correlations between the two maps, but there are certainly exceptions. Many of the top 10 states for potential earnings do have decent savings rates, with the glaring exception of Wyoming. Despite having the second highest potential savings, only 17% of Wyoming residents had more than $1,000 in savings, the second worst in the country. The savings rate for Washington residents was also not particularly impressive. Many of the bottom 10 states for potential earnings similarly had low savings rates, except for Maine, in which 38% of residents had more than $1,000 in savings, and West Virginia, which was not too far behind at 33%. Other notable exceptions where residents managed to save much more than would make sense based on potential savings include Delaware, Vermont, Michigan, and Utah.
Table Showing Average Annual Potential Savings and Percent Of Individuals With More Than $1,000 In Savings
|State||Average Annual Potential Savings||Percent With >$1,000 In Savings|
Overall, it appears that many people are not putting away much money into savings accounts. However, this makes sense since in many states, a family of three would need two wage earners just to cover basic living expenses. Residents of some states are actually managing to save surprisingly well considering that an individual’s average income in these states is less than the living wage.
I should note that these are all average values, so they are likely skewed by high earners. Also, keep in mind that we are only looking at savings account balances as I was unable to find information about checking account balances by state. Considering the current low interest rates, it is certainly possible that people are just keeping any extra money in a checking account to make paying bills easier since they are not missing out on interest.
For anyone feeling smug about having $1,000 in a savings account, you should be proud to be doing better than most Americans. However, don’t get too full of yourself. Saving $1,000 is just the first step beyond living paycheck to paycheck. Try to save up an emergency fund of at least three to six months worth of expenses to protect yourself from any future issues that may come your way. Then turn your focus to investing to grow your wealth further.