One Third of Minnesota Parents Not Prepared for Financial Emergency: BMO Harris Bank Study

Marketwired

MINNEAPOLIS/ST. PAUL, MN--(Marketwired - May 22, 2014) -

  • Minnesota parents report average emergency savings of $6,474
  • Experts suggest having three to six months pre-tax income saved
  • Average out-of-pocket medical expenses in child's first year is $1,617
  • BMO Harris Bank offers tips and online tools for future and new parents to manage family expenses

A new study released today by BMO Harris Bank found that a third of Minnesota parents with young children do not have savings set aside for a financial emergency. An additional nine percent have less than $1,000 saved. The average rainy day savings of parents with young children is $6,474, and the average for those planning to have a child is about half that -- $3,464.

The study, which surveyed people expecting to have a child in the next five years and parents with children less than 10 years old, revealed that in Minnesota:

  • One third of current parents do not have savings, and slightly more (35 percent) of future parents have not started saving for a financial emergency
  • Twelve percent of future parents who have saved have less than $1,000 in emergency savings
  • Of those with savings, most have savings between $1,000 - $9,999 -- forty-one percent of current parents and a little over a third (36 percent) of future parents
  • Seventeen percent of both current parents and future parents have $10,000 or more in savings 

"It's very positive that the majority of parents in Minnesota have made the commitment to save actively for their financial health and the financial health of their family," said Todd Senger, Regional President, Minnesota, BMO Harris Bank. "It's important to have three to six months of pre-tax income set aside and regularly saving even small amounts can make a big impact in reaching that goal and being prepared for when an emergency arises." 

Parents were also asked about other hidden costs associated with a child, and found that the most common costs in Minnesota were increased utility/energy bills (48 percent), one or both parents needing to take time off work or quit (44 percent) and needing to buy a car or upgrade to a bigger one (42 percent). 

"Consumers are currently saving about 4.5 percent of their after-tax incomes, in line with the average of the past decade. While this is below the more than 6 percent savings rate in the wake of the recession -- as households worked hard to repair their balance sheets -- it remains well above the lows of around 2.5 percent that we experienced during the housing bubble period," said Michael Gregory, Head of U.S. Economics, BMO Capital Markets.

Savings for Medical Costs Need Regular Check-Ups Too

The survey also examined the parents' concerns specifically around medical costs. A majority (82 percent) of parents in Minnesota said the cost of healthcare is one of their financial concerns. Current parents said they spend an average of $10,874 in medical expenses, the majority of which is covered by insurance. The average for out-of-pocket medical expenses for a child in their first year was $1,617. A little over a third (35 percent) said they don't know how much first-year medical costs were.

The survey showed what aspects healthcare parents and soon-to-be parents in Minnesota are most concerned about:

     
Healthcare Cost Parents Future Parents
Medical Insurance 62% 74%
Hospital Bills 57% 70%
Prescription Drugs 44% 53%
Regular doctor check-ups 41% 57%
Vaccines/Inoculations 31% 60%
     

At the national level the study revealed:

  • U.S. parents have an average of $9,737 saved for an emergency
  • Future parents have an average of $5,523 set aside
  • Average spend on medical costs is $9,676, with $1,297 of that being out-of-pocket
  • The most common hidden costs were the need to buy a car or upgrade to a larger vehicle (49 percent), increased utility/energy bills (46 percent) and taking time off work (43 percent).

"As the economy continues to improve this year, particularly on the jobs front, it will help fuel personal income growth. This, along with a steady 4.5 percent savings rate, will result in rainy day savings building up more quickly, but this should not be a call to reduce the savings rate. It would be prudent to keep saving at the same pace, redirecting the flow to help finance future big-ticket outlays, paying down debt or saving for retirement," added Mr. Gregory.

For more information about planning for the next Life Stage, visit bmoharris.com/yourfinanciallife

Survey results cited in this release are from a Pollara survey commissioned by BMO Harris Bank with an online sample of 1,500 Americans (including 150 in Minnesota) conducted between November 22nd and 29th, 2013. This includes 993 interviews with parents of children under 10 and 507 interviews with Americans who expect to have their first child in the next 5 years. The margin of error for a probability sample of this size is ± 2.5 percent, 19 times out of 20.

About BMO Harris Bank
BMO Harris Bank provides a broad range of personal banking products and solutions through more than 600 branches and approximately 1,300 ATMs in Illinois, Wisconsin, Indiana, Kansas, Missouri, Minnesota, Arizona and Florida. BMO Harris Bank's commercial banking team provides a combination of sector expertise, local knowledge and mid-market focus throughout the U.S. For more information about BMO Harris Bank, go to the company fact sheet. Banking products and services are provided by BMO Harris Bank N.A. and are subject to bank or credit approval. BMO Harris Bank® is a trade name used by BMO Harris Bank N.A. Member FDIC. BMO Harris Bank is part of BMO Financial Group, a North American financial organization with approximately 1,600 branches, and CDN $593 billion in assets (as of January 31, 2014).

Contact:
Media

Beth Copeland
Indianapolis
beth.copeland@bmo.com
317-269-1395
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