Determinants of Adequate Emergency Funds Including the Effects of Seeking Professional Advice and Industry Affiliation

Abstract

This research examined the effects of seeking professional financial advice and being employed in different industries on a household’s likelihood of holding adequate emergency funds to cover six or more months without income. The theory of precautionary savings provided a conceptual framework for the study. Three measures of emergency funds were analyzed: Subjective funds, Quick funds, and Comprehensive funds. The sample consisted of working household heads in the 2007 Survey of Consumer Finances. Seeking professional financial advice significantly increased the likelihood of holding adequate Comprehensive funds. Only household heads employed in financial, insurance, real estate, repair, and advertising industries were more likely to have adequate levels of Subjective and Comprehensive funds. Household heads employed in manufacturing, construction, and retail industries, which are more likely to be affected by a recession, did not have increased likelihood of holding adequate emergency funds. Financial educators and advisors need to stress the importance of adequate emergency savings.