Many people would like to have a reserve fund which is easily accessible should the need arise. This kind of financial buffer may be necessary, for example, in case of illness, unexpected renovation or unemployment. In a survey Nordea asked a group of Finns how big an ideal financial buffer should be and how much people have actually saved for a rainy day.
Nearly half of the respondents considered that the ideal size of a buffer would be an amount corresponding to two or three months’ net income. Only every sixth respondent said that about one month’s net income or a smaller amount would be enough. Especially young adults and people with average income were of this opinion. Only four respondents out of one hundred thought that no buffer is necessary.
In reality, almost one fourth of the respondents do not have a financial buffer. Projected to the entire population this is about 800,000 Finns. Especially people under the age of 40 and people with low income living in a rented flat or house live without a financial buffer.
- About every fourth Finn has saved a sum corresponding to one month’s net income or a smaller sum. Altogether almost half of the respondents are in a very vulnerable financial situation if they for some reason should have to pay unexpected expenses, says Anu Numminen, Nordea’s Private Economist.
Every fourth has an ideal financial buffer
Only every fourth respondent has managed to save a sum corresponding to two or three months’ net income for a rainy day. However, people with large income and the age group between 54 and 65 may have buffers corresponding to the net income of more than 9 months.
- The size of an ideal financial buffer is of course a very personal matter. If you live in an old one-family house you need to be prepared for unexpected repair costs in a different way than if you live in a fairly new flat. Household appliances are used a lot in families with children and if the washing machine breaks down, it may be a small catastrophe. It is also important to have sufficient insurance cover, Anu Numminen says.
Financial security is also needed in case of unemployment. In many unemployment funds, daily benefit applications are piling up and it may take as long as a couple of months before benefits are paid out. However, Anu Numminen does not recommend building up too sizeable a financial buffer.
- If a person has saved a sum corresponding to the net income of 9 months, it is quite a considerable sum. A better way would be to invest it profitably than to keep it in a low-interest current account, Anu Numminen says.
Nordea interviewed over one thousand Finns between the ages of 16 and 65 in October-November 2009. This age group includes about 3.5 million Finns. A similar survey was also conducted in Sweden, Norway and Denmark.
For further information:
Anu Numminen, Private Economist, +358 9 165 88218
Anni Kuusisto, Press Officer, +358 9 165 42653