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What Happened To The Rainy Day Fund?


This is TALK OF THE NATION. I'm Neal Conan in Washington. Conventional wisdom holds we should all put enough away in a rainy day fund to cover expenses for three to six months. That may be a pipe dream for many. So how about a more modest measure: more in emergency savings than we owe on our credit cards.

A study just out from reports that almost half of Americans don't meet that standard, either. Putting away money to pay off that trip to the emergency room or a busted transmission can be tough if you live paycheck to paycheck, and the advice on how to save for those unexpected moments is not exactly straightforward.

So tell us about your rainy day fund. Where is it? What's it for? 800-989-8255. Email us, You can also join the conversation on our website. That's at Click on TALK OF THE NATION.

Later in the program, we continue our series on films nominated for Best Feature Documentary at the Oscars with "If A Tree Falls: A Story of the Earth Liberation Front." But first emergency savings. Richard Barrington joins us from member station WXXI in Rochester. He's senior financial analyst for, and nice to have you with us today.

RICHARD BARRINGTON: Well, it's nice to be here, thank you.

CONAN: And perhaps our initial thought during tough economic times is more of us would be saving more, and, well, that seems to be true but not a lot more.

BARRINGTON: No, it's not. Actually, while debt came down a little bit during the recession and just after it, it started to creep back up again.

CONAN: So we're back on the road to profligate spending?

BARRINGTON: Well, I don't think we're back on the road. I'm not sure we ever left that road. You know, in the '50s, '60s, '70s and even '80s, personal savings rates of seven or eight percent were common. Now, we haven't seen a personal savings rate above six percent since 1992.

CONAN: And why is that important?

BARRINGTON: Well, that's important because presumably most of us are going to want to retire someday.

CONAN: And so that's a retirement nest egg. So beyond that, it's a rainy day fund, to provide for those crises that do crop up in life.

BARRINGTON: Yeah, that's right. You have to have both emergency savings and retirement savings. And the real distinction between the two is the nature of how you invest them. Emergency savings need to be something that you can access fairly quickly. You don't want to have to disrupt a long-term retirement investment program, which can have both investment and tax implications if you have to break into it just for a short-term emergency.

So you need to - I would say in terms of savings, start with an emergency fund and then keep going from there into retirement savings.

CONAN: So build up the emergency fund first and then build up your retirement savings. So the Matisse that you've always had carefully wrapped in your basement, that shouldn't be considered part of your emergency savings. That's not something for a rainy day. It's going to be a hard time selling it. It may not be a Matisse, either.

BARRINGTON: That's right, yeah, for a lot of reasons that type of thing. And even stocks, you know, stocks are liquid, you could sell them any day, but your emergency, especially an economic emergency, might happen to coincide with a bad time for the stock market, and, you know, that could be the worst time to sell.

CONAN: So those things, you can never really anticipate. Yeah, the stock market's doing pretty well of late, but a couple years ago, it wasn't so great. Why is it so tough for Americans to save when the economy is in trouble? You'd think the incentives would really be there.

BARRINGTON: Well, I'm glad you mentioned incentives, because I think that government policy has done a lot to disincentivize savings. I would - they've, you know, basically encouraged borrowing at the expense of savings. So if Americans are addicted to debt, then government is the number one enabler.

CONAN: So, one of those incentives being that if you put it in a savings account, you're lucky to get one percent.

BARRINGTON: Yeah, actually, we did a study on and found that the best savings and money market accounts were up around one percent. According to the FDIC, the average savings account rate now is one-tenth of one percent. So that's the incentive out there for savers these days, something between one-tenth and one percent in interest, and this is at a time when inflation is at 2.9 percent. So there's a real cost to this.

CONAN: Yeah, inflation not sky-high by any stretch of the imagination, but a lot higher than the interest rate.

BARRINGTON: Yeah, and in terms of what that inflation is doing, we've done a study the last couple years at MoneyRates, and we're due to update it in a couple months. And what it looks at is how much purchasing power U.S. depositors have lost due to the unnaturally low interest rates that are out there right now. And that's largely a function of Fed policy.

What the most recent study found was that this cost U.S. depositors about $170 billion in purchasing power in one 12-month period, again largely due to the Fed's policy. So back to your question, what are the incentives to save, and why aren't people saving, well, effectively, government policy has all but removed the incentive to save.

CONAN: We're talking about rainy day funds. How much is in yours? What's it for? 800-989-8255. Email us, Brett's(ph) on the line with us from San Antonio.

BRETT: Hi, yes. I save - I work for tips, and I put in - whenever I make a good amount of tips, I'll put in like $10 just into like a safe box I own. And it's pretty much just for, I guess, like if something happens to my car or something. But I don't know if I should be, instead of saving that, if I should just be paying down my car - my car payment.

CONAN: Well, that car payment, you're used to making the same amount every month. Those coupons, I suppose, are still in effect. But if he can pay that down, doesn't that get him out from under some interest, Richard Barrington?

BARRINGTON: Well, Brett, what's the interest rate on your debt?

BRETT: I think it's like eight. That's a guess. I'm really not too sure.

BARRINGTON: Well, that's better than credit card debt, which would be in the double digits, though the difference is - and the reason why perhaps you shouldn't pay down the card debt before you build up some savings, is that if you have an emergency unrelated to your car, it's not like you can get that line of credit back. OK?

And so once you've made the extra car payments, if you were to accelerate those car payments, and all of a sudden, you had a need for credit, you might be looking at taking out credit card debt at 15, 16 percent. So I think as long as you're steadily saving some money, it's OK to pay down the car debt in the normal course of the loan schedule.

BRETT: Just the regular payments I make each month?

BARRINGTON: Yeah, yeah.

CONAN: And you keep your tip money in a box?

BRETT: Yeah, I just have a - I have a little, like a cash box, and just whatever I make a - like whenever it's a good day, I'll throw like 10 bucks in there, and...

BARRINGTON: And then what do you do with the cash then? Do you put it in a bank every now and then?



BRETT: No, I just have it all right there.

CONAN: So pretty soon it's going to be Scrooge McDuck's money bin.


BRETT: Yeah, yeah, I guess. In case I ever - you know, like I'm like oh, I really need some amount of money, I guess. I haven't dipped into it yet. I try not to. But I also kind of live paycheck to paycheck. So it's just in case, I'm able to just grab $10, I guess.

BARRINGTON: Well, I'd advise you to think about opening a bank account for both security reasons, and also you'll find yourself, if you do that, there'll be less temptation to dip into it for things that aren't a real emergency.

BRETT: Right.

CONAN: Good luck, Brett.

BRETT: Awesome, thank you.

CONAN: Thanks for the call. Let's see if we can go next to - this is Sara(ph), Sara with us from Ithaca in New York.

SARA: Hi. Yeah, I've found one strategy that works really great for my husband and I has to do with the ability to access the money. And so what we do is we have a couple hundred dollars from each of our paychecks every month go to a bank that's a couple towns over and doesn't have online services.

And so I have to physically go there to get the cash, if I want to use it to pay for something.

CONAN: Ah, so you put...

SARA: Instead of having it in, like, a savings account that I can access online, hooked to my checking account, because I'm more likely to bump that money into my checking account and, you know, smaller things are more likely to become a quote-unquote "emergency" then, or a rainy day. So it's been really effective.

CONAN: It forces you to think about making that trip, what, 15, 20 miles down the road to...

SARA: Exactly. It makes you sort of think about, is this really a rainy day, is this really important or not.

CONAN: Has there been what would qualify as a rainy day in your life?

SARA: We have. We've used it a couple times, recently, most recently, for a down payment on a car and a house.

CONAN: So those seemed like good moments to dip in.

SARA: Exactly.

CONAN: Emergencies and opportunities at the same time.

SARA: Exactly, yeah.

CONAN: And taking advantage, that's the other side of those low interest rates, you were able to get a really good mortgage rate on your house, I suspect.

SARA: That's exactly right.

CONAN: All right. Well, Sara, thanks very much for the call.

SARA: Thank you.

CONAN: And I guess, Richard Barrington, that's what the Fed is trying to encourage is maybe we'll get this housing market going, and interest rates might be able to rise then.

BARRINGTON: Yeah, and certainly, classically, low interest rates are supposed to be an economic stimulus. But there's another way of looking at it. Encouraging borrowing may well be the wrong medicine at a time when there is already too much debt. We might be better off restoring the income that savers have lost because of low interest rates.

But in any case, it's important to recognize that low interest rates are not a cost-free policy.

CONAN: Let's bring another voice into the conversation. Donna Freedman is with us. She writes a personal finance column for MSN Money and joins us from the studios of member station KUOW in Seattle. Nice to have you with us.

DONNA FREEDMAN: Thanks for the invite.

CONAN: I should mention you're also a staff writer for, which is in my case very, very slowly. [POST-BROADCAST CORRECTION: Donna Freedman is a staff writer for, not .com.]

But in any case, I'm wondering, as we're talking about this study, which finds that almost half of us have more credit card debt than we have in emergency savings, how do you prioritize those two things? Yes, you're paying very high interest rates on those credit cards, but you do need some liquid assets in case there's an emergency.

FREEDMAN: Well, I agree with Richard that you do need cash on hand in case of an emergency. If your job went south, would you be able to pay your rent next month? Would you be able to pay your rent on the unemployment you might get? That would be a big issue for me.

And in terms of how much you should have on hand, people talk about three months or six months. I think that's a swell idea, but I think it could discourage some people from saving. They'll think: I could never get that much. What's the point?

So I always suggest that people start with a financial fire drill. In other words, look at your absolute baseline expenses. What's the least amount we could live on for a month: rent, basic food, basic utilities, basic debt service. And shoot for three or six months' worth of that amount, and that means being ruthless.

CONAN: And rock bottom, yeah.

FREEDMAN: You're going to be suspending your gym membership and suspending the cable, and saving is hard, but here's what's harder: not having any cash in the bank to tide you over if things do go south.

CONAN: We're talking about rainy day funds and credit card debt, the relationship between the two. You just heard Donna Freedman. Also with us is Richard Barrington. What is your rainy-day-fund goal, and how close are you to it? 800-989-8255. Email us, Stay with us. I'm Neal Conan. It's the TALK OF THE NATION from NPR News.


CONAN: This is TALK OF THE NATION from NPR News. I'm Neal Conan. The economy is slowly growing, however slowly, but it's had a profound effect on how Americans spend and save in times of want. It might seems like we're apt to sock money away in our mattresses or coffee cans and at the bank, to insulate ourselves from those financial bumps ahead, maybe disasters that could be around the corner.

The reality is that these days many Americans owe more in credit card debt than they have saved up. So we want to know: Where's your rainy day fund? What would you consider tapping it for? 800-989-8255. Email us, You can also join the conversation on our website. That's at Click on TALK OF THE NATION.

Our guest is Richard Barrington, senior financial analyst for Also with us is Donna Freedman. She writes a personal finance column and the Frugal Cool blog at MSN Money. And again, let's see if we can get a caller in on the conversation. Let's go to Rick, and Rick with us from Minneapolis.

RICK: Hi, how are you?

CONAN: Good, thanks.

RICK: Good. I was wondering: I've got - would it be a good idea to maybe get rid of some of your whole life policies and maybe invest that money into something like a mutual fund or something like that or maybe give some money up to - or cut it in half, anyways. I know that's kind of your retirement there, but, you know, I don't know what to do here.

I've got debt up to my eyeballs, and I've got this, you know what I mean, like I just, I just don't know what to do. I think most people out there, you know, they need some right advice. I mean...

CONAN: And you have...

RICK: They don't know the money game.

CONAN: You have a whole-life insurance policy, that's how you're saving for retirement?

RICK: Well, yeah, that's - I mean, the insurance agent that sold it to me, he said, hey, you know, this is a good way to save for your retirement, plus insurance. You know, you've got - you're killing two birds with one stone, right. So...

CONAN: And do you have a family?

RICK: Yes, I do.

CONAN: How many kids do you have?

RICK: Four kids.

CONAN: And they're young?

RICK: They range from 18 down to three.

CONAN: All right, Donna Freedman, any advice for Rick?

FREEDMAN: I think you'd better talk to somebody else about insurance. I'm afraid that's not my area of expertise. Sorry.

CONAN: Richard Barrington, any ideas?

BARRINGTON: I was hoping Donna would have an answer.


BARRINGTON: No. I'll say - and I think the reason that we both might punt on it is that with insurance the devil's always in the details. With an insurance policy, when there's a long-term life benefit, there's an implied rate of return in terms of the money that you're likely to put into that policy and the money you're likely to get out of.

And what you need to do is sit down with a financial planner, have them examine your specific policy and what the implied rate of return is, and then that'll start to give you an idea of whether you could do better somewhere else.

FREEDMAN: I agree.

CONAN: Good luck, Rick.

RICK: Thank you.

CONAN: Here's an email that we have from Lindsay(ph) in Columbus: I read when I was 20 that my rainy day fund should be six months of bills and whatnot. I got money back for - I set money aside for years, and something always happened - the car broke down, my dog got sick. At this point, five years later, I simply attempt to put everything back that I can after my rent and bills are paid.

That's been hard because life is full of so many unforeseeable events. I feel like I'll never get around to retirement because once my emergency fund is at a comfortable amount, I end up having an emergency.

And that treadmill feeling, Donna Freedman, that's - a lot of people feel like that.

FREEDMAN: I agree, and again, it's - if you look at your baseline expenses and get the financial fire drill going, and initially that's about as pleasant as thinking about a colonoscopy. You know you should be doing it, but you're a little bit afraid of what you might find out. You know, what if I can't make it on one salary? What if I can't make it on unemployment?

But I think that knowing what your survival budget looks like can be really reassuring. It's sort of your playbook for tough times. If worse comes to worst, I could manage on as little as 1,100 a month, et cetera.

I also think that people who worry about ever being able to retire at some point may have to look at cutting certain expenses. I know from personal experience that consumer debt can be absolutely unavoidable - for example, medical debt. I also know that if you're living close to the bone already, that one movie a week or that one craft beer on Friday is a small luxury, and it makes a huge difference.

But I also know that if you were faced with an emergency or even a drastic salary reduction, you'd be really glad you made those cuts to your budget. So look at your budget, and if there's anywhere you can cut, consider cutting temporarily. It's not fun, but welcome to adulthood. It's not always fun. A little discipline and a little self-sacrifice for short-term security, as well as long-term security.

CONAN: And those of us on the - on that very close edge, Richard Barrington, a lot of people say, look, just cut up your credit cards because no good lies down that road. And credit cards are such an elemental part of everybody's life these days.

BARRINGTON: Well, that's right, and I don't think there's anything inherently wrong with credit cards. I mean, you can use them - they're like anything else. You know, you can use them responsibly, or they can get you in a lot of trouble. If you find that over time you haven't been able to use them responsibly, then yes, cutting up the credit cards might make sense.

But if you're able to use them as a cash substitute and pay your bills every month and stay on-budget, then you know, they're just a tool.

CONAN: Let's go next to Sara(ph), Sara with us from Panama City.

SARA: Hi, thanks for having me on. I love the show.

CONAN: Thank you.

SARA: I hope this doesn't sound too pathetic, because I am an adult and I should be better at this by now, but the fact of the matter is I'm terrible at saving. I've always been terrible at saving. I'm a shopaholic. I love clothes and makeup and getting my hair done, and I'm terrible about it.

So what I had to do is get somebody I trust and who cares about me and my financial, you know, survival, namely my husband, and he has an account that's just for me. He'll give me little update emails about how well I'm doing, and I take about a quarter of my paycheck every, you know, paycheck cycle, and I just transfer it over to his account, and I don't ever see it again until, you know, some - you know, hopefully until - no emergency will happen and we can make a down payment on a house one day, and I will have contributed to that.

And as good as it felt to get what I wanted when I wanted it, it feels really good to get, like, my little emails that say hey, you have $5,000, you have, you know, next time you put money in, if you put this much in, you'll have this much. It's nice to know that that's there now. But I was incapable. I don't know what's wrong with me.

CONAN: Sara, I would not run yourself down. Donna Freedman, it sounds like she's doing the right thing.

FREEDMAN: I think so. There's nothing wrong with wanting things. I think - I agree with Richard that credit cards can be great tools. But just like a hammer can be used to build a fence, you could also bash your thumb with it. Just use it responsibly.

And hey, I interviewed a woman once who knew she couldn't do it responsibly. So she had her boyfriend move a very heavy armoire away from the wall. She taped the card to the back and put it in place.


SARA: That's amazing.

FREEDMAN: She cannot physically budge that armoire. When she needed it, in an absolute need, he would come over and move it, and she could get the card. Do what works for you.

CONAN: That may be a big argument against joining the gym, so she could get strong enough to move the armoire.


BARRINGTON: May I add something to that?

CONAN: Go ahead, please.

BARRINGTON: Yeah, I think the important thing is the caller has found a system. And after a while, if you have a system where you are regularly contributing money to savings, it will be just as if you were earning a lower salary, and that would be how you thought of your income, it would be how you defined your luxuries.

And so savings can very easily become a habit rather than an extra effort.

FREEDMAN: Right, set it and forget it.

SARA: It feels good. Adulthood, yay.


CONAN: Congratulations, Sara.

SARA: Thanks, bye.

CONAN: Let's see if we can go next to - this is John(ph), and John with us from Coventry in New York.

JOHN: Hi, Neal, love your show, always the best.

CONAN: Thank you.

JOHN: What I do is every day I put at least a dollar in a little cardboard box. And at this point I haven't counted it up yet, but I've got about a two-foot stack of money in there. That's one little rainy day fund.

The other one is I'm in the antique car restoration business. I restore antique automobiles, but I also have a garage - I won't say full, but I have quite a few automobiles. And they will bring me a very good return on my dollar if need be.

CONAN: If need be. That's unusual. What kind of cars do you have socked away in there?

JOHN: Oh, a little bit - I like to go the whole gamut. I have a Mercedes Benz, 1940 Ford, '56 Chevy, my old hippy van of a '69 Dodge.


JOHN: It's the coolest thing you've ever seen. Kids love that thing. And they - the antique car business, being what it is, the Americans loving their automobiles so, just never seems to die. My suppliers, when I call them to put in an order for parts, I'll be on hold sometimes for 15 minutes because they are so busy taking orders, and almost every time I talk to one of them, they've hired one or two new people to help them with their orders.

They just never - especially Corvettes. My best friend Joe(ph) is into Corvettes, and it's just unbelievable, Neal.

CONAN: And have you ever had a rainy day and sold off a Rio or...

JOHN: Thank goodness no, not yet.

CONAN: All right.

JOHN: Not yet. I hope that doesn't come - I don't come to that, but if need be, it's there.

CONAN: Richard Barrington, antique cars may be recession-proof. I'm not so sure about the shoeboxes full of dollar bills.


BARRINGTON: Yeah, at some point - although it sounds like the caller's getting a good amount of positive reinforcement from seeing the height of that stack of dollar bills. But at some point, yeah, for security reasons and to earn a little interest, even though it's a small rate of interest, it makes sense to take money out of the shoebox and put it into the bank.

As for the cars, you know, normally, I wouldn't recommend an investment as illiquid as classic cars to be the bulk of somebody's long-term savings. But if what's happening here is that the caller is adding a lot of the value by doing the restoration himself...

JOHN: Yeah.

BARRINGTON: ...then basically, he's converting sweat equity into, you know, potential tangible equity. And so I think in that circumstance, it can make sense.

CONAN: So, you finally gotten rid of the patchouli oil smell in the Dodge?


BARRINGTON: That's probably part of the charm.


JOHN: Absolutely, Neal. Absolutely.


CONAN: Thanks very much for the call, John.

JOHN: Thank you, Neal. I love your show.

CONAN: Thanks very much. Good luck to you. Let's see if we can go next to - this is John, and John's with us on the line from Spokane.

JOHN: Yeah. Hi. Thanks for taking my call.

CONAN: Go ahead, please.

JOHN: Well, my wife and I, we made a goal many years ago when we first got married to be able to live off of just one salary and save one of our other salaries. And about six months ago, we're finally able to do that by focusing on debt first, and then now we're finally able to save one of our salaries completely.

And that's a great feeling, but after kind of building up a nest egg, I just don't feel that that money is really working for us. And although cash is nice to have as a safety net, I just feel like every month, we're almost losing value in our savings because cost of living goes up, but, you know, we're not earning any interest. So, you know, what - where is a good place to put it, still have it liquid, but, you know, earn enough to make it worthwhile?

CONAN: Any ideas, Donna Freedman?

FREEDMAN: I would say talk to a certified financial planner and have - again, the devil's in the details. Tell me - he would - he or she would be able to talk to you about your life, your goals, your family, any health conditions you have. There's a lot of each individual set of details that make it hard to diagnose over the phone.

CONAN: Sure. Richard Barrington, any broad-term suggestions?

BARRINGTON: Yeah. I would say that this is why when we talk about building up emergency funds. That's a starting point, but it's not the ending point. Once you build up the emergency funds, once you get into longer-term savings, then you want to think about longer-term investments, because this is not money that you'll need for short-term liquidity.

So, basically, once you get past that benchmark - whether it's six months, whatever you think makes sense - then you start building long-term retirement savings. And you need a mix of stocks, which are going to do better against inflation over the long time, and things like - and more conservative things.

But, again - so it - bottom line, because of inflation, it sounds like this person has a sound enough savings program and has built up enough that maybe it's time to get into some more equity-oriented investment products.

CONAN: Good luck, John. It sounds like this is a nice problem to have.

JOHN: Thank you.

CONAN: Bye-bye. We're talking with Donna Freedman, who writes a personal finance column for MSN Money and writes the Frugal Cool blog for MSN Money. Also, Richard Barrington is with us, senior financial analyst for You're listening to TALK OF THE NATION, from NPR News.

This email from Carrie(ph) in New York, I think, or perhaps her name is Carrie Ny(ph): Saving's only for the wealthy. When you're a recent graduate working only two years after trying to buy a house or putting $250 in gas into my car just to get to work, paying student loans, car loans, et cetera, there is no room for saving.

Donna Freedman, I understand her financial position, but you got to start somewhere.

FREEDMAN: I agree. And even if it were only $5 a month, it would be something. The thing is, once you start that account - and name it, by the way. Name it My EF. Name it The Contingency Fund, The Oh, Crap Fund. Call it Billy the Bank if you have to. You want it to be a separate account that you cannot dip into because you feel like having a pizza after a long work week. Even if it were $5 a month, you would have $60 at the end of the year. But once you get it started, you're going to find ways to build it up.

A couple of things I'd like to suggest would be to change a habit, even temporarily. Have a pantry challenge, where you eat only what's in the cupboards and fridge until they're both empty - and freezer. Have a meatless Monday. Give up fast food or salty snacks or soda for a week or a month or forever, and bank what you would have saved.

Again, I know that sometimes that one little luxury can make a difference, but so can a little peace of mind. Make your own job. Find a need and fill it. I once interviewed a woman who told other working parents that she would walk their kids to school along with her own. And she gets $5 per kid per day for doing what she was going to do anyway before she left for work. I've talked to a student who was doing chores for really busy people, who couldn't get to the dry cleaner before six. She'd go pick up their dry cleaning and get paid to do it.

And another thing I would suggest is to sell stuff on Craig's - well, on eBay. I recently sold two boxing programs and two little sports action figures that I got as part of the community property split. I got $1,200 for the four of them. I was completely shocked.


FREEDMAN: But that money is going right into my own emergency fund. Pardon me. Donate plasma. It takes a few hours, but it pays pretty well. Start a savings support group with a friend or friends. If you have a really competitive friend, start an EF challenge. Set a challenge and say, OK, in six months, we're going to compare bank accounts and see who's got the most in his EF. And, again, a dollar here and a dollar there does add up.

CONAN: Richard Barrington, we just have a few seconds left. I wonder if you have any similar kind of advice.

BARRINGTON: I think, just to be brief, everybody says, well, I'm living paycheck to paycheck. I couldn't afford to save anything. Well, just imagine if you were making less. And, you know, for better or worse, the recent recession made people, you know, be able to imagine that in real life. But in other words - so imagine you were making 10, 20, $100 less. You would find ways to get by, and you'd even find ways for the occasional little luxury. So there's room in just about every budget for some savings.

CONAN: Richard Barrington, thanks very much. Richard Barrington, senior financial analyst for Our thanks, as well, to Donna Freedman, who writes the Frugal Cool blog for MSN Money and is a staff writer for [POST-BROADCAST CORRECTION:]

She was with us from KUOW in Seattle. Richard Barrington, with us from WXXI, our member station in Rochester, New York. Coming up, we continue our Oscar docs series this year. Marshall Curry, director of "If a Tree Falls" will join us after a short break. Stay with us. I'm Neal Conan. It's the TALK OF THE NATION, from NPR News. Transcript provided by NPR, Copyright NPR.