Almost one in three Britons has no rainy day savings set aside, although most people recognise they would need more than £5,000 to survive if their regular income stream dried up, according to new figures from National Savings & Investments (NS&I).
Meanwhile, research from financial services provider, Axa, reveals that 49% of British adults have less than £1,000 in savings and investments of any kind.
This is worrying, given statistics from the British Chamber of Commerce show that unemployment in the UK will reach 3.2 million next year as the recession continues to bite.
Dax Harkins, NS&I's senior savings strategist, said, "It is essential that we are prepared for any emergency that will require immediate access to money and ensure we are saving enough to cover us in a crisis."
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Just how unprepared are we?
Ideally, we should all have enough cash to cope for three to six months set aside in an easily-accessible account or fund.
The average worker would need to have £5,386 set aside to cover them for just four months of unemployment NS&I says. So anyone with less than £1,000 in readily available funds would be penniless within a month should they lose their job.
Why are we in this situation?
The NS&I survey reveals that the main reason for this lack of preparation is complacency, with 32% of those questioned saying they thought life was too short to worry about saving for a rainy day.
A further 7% of those without an emergency fund said they're not concerned because they don't expect to need one in the near future.
But that is not the only problem. The way people are saving is also of concern, NS&I reported.
Of those who are putting money away to protect themselves against a financial crisis, more than a fifth simply aim to leave an amount in their current account at the end of the month, rather than siphoning it off into a separate savings account.
Also, their ideas on how to cope in a financial emergency show a lack of understanding of the cost of credit in the current climate.
In the unfortunate event of redundancy, 17% of those surveyed said they would take out a personal loan to make ends meet, while a further 12% would apply for a new credit card.
What help is available from the government?
If you are out of work you may be entitled to a series of benefits, including Jobseeker's Allowance and Child Tax Credit. Visit the Department of Work and Pensions website for more details of your entitlements.
For those struggling with their mortgage payments, there is also a range of government schemes in force.
What to do if you can't pay your mortgage
The Council of Mortgage Lenders believes that the number of households more than three months' behind their mortgage repayments will reach 500,000 by the end of this year.
In a bid to counteract this, initiatives such as the Income Support for Mortgage Interest scheme have been improved. The period of time homeowners who lose their jobs must wait before receiving help with their mortgage interest payments has therefore fallen from 39 weeks to just 13.
How can I protect myself?
The best way to protect yourself against an unexpected cashflow crisis is to start building up a rainy day fund in an easy-access savings account.
The leading easy-access accounts are paying around 3% interest. Sainsbury's Finance is currently offering 3% to new customers with £5,000 or more to invest in their instant access Internet Saver account, while smaller savers would be better off with a savings account from ING Direct, which also pays an initial rate of 3% on £1 upwards.
Related links
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