Most rainy day funds don’t cover emergencies

The third-annual BMO Rainy Day survey finds 68% of Canadians have had to use their emergency savings to pay for unexpected expenses.

What’s more, 58% didn’t have enough saved to cover the full cost.

The survey also found 51% of Canadians have less than $10,000 saved to cover emergencies, and nearly one in five—17%—have less than $1,000.

Read: Wealthy focus on savings after recession, says study

For people who relied on their emergency savings for a major car or home repair, only 49% and 47%, respectively, could cover the entire cost.

Of those faced with job loss, 35% had sufficient savings.

Beyond cutting back on expenses, the study asked Canadians what their fall-back plans would be once they had exhausted rainy day savings. Selling assets like cars or jewellery or turning to family and friends were the most likely avenues for 41% of people surveyed. Twenty-seven percent preferred taking out a line of credit while 18% would cash in investments.

Canadians have emergency savings in different places. TFSAs are used by 49%, savings accounts are tools for 47%, while 47% use other non-registered investments such as GICs, mutual funds, stocks and bonds.

About one-third use a chequing (34%) or high-interest savings account (30%) and 16% keep their emergency savings in cash.

Read: TFSAs reduce retirement income risk

A typical emergency fund should equal three to six months of income, says Christine Canning, head of everyday banking products, BMO Bank of Montreal.

Read: McDonald’s employee budget ignores food, heat, reality

The personal savings rate in Canada has risen from historic lows of 1% in 2005 to 5.5% in Q1 2013, BMO Economics notes.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.