Why we need to build America’s personal financial safety net

Our elected officials in Washington have been engulfed in a long debate over the programs and related funding of our national social safety net designed to protect individuals and households.

The National Safety Net includes many rights and other programs, including the Big 3 – Social Security, Medicare, and Medicaid. These programs have been designed over the years to help households if certain life events occur.

But in my opinion, the national safety net does not properly reflect today’s basic economic needs and is not as comprehensive as it should be. The net has gaping holes through insufficient benefits, underfunding, benefits that need to be rethought, and a lack of periodic updating to reflect the reality of life in today’s world. This is why households must set up their own financial safety net. The financial services industry, especially the insurance segment, must step in and help.

Realities of household protection

We read articles in the financial media about household insurance coverage and savings gaps for health issues, income protection, long-term care needs, sufficient life insurance, and savings. deplorable levels of retirement readiness. These discrepancies are real with many families one or two paychecks under major financial stress if a breadwinner becomes ill, dies prematurely, or lives a very long time.

Our government has not designed and likely will not create a national safety net to provide these necessary protections to households. The government is not and cannot be the insurer of last resort for all household financial risks.

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The personal financial safety net

I tried to find a way to clearly and easily explain why households need to support themselves financially and become more self-sufficient. It’s like telling someone to lose weight, get more sleep, or take better care of themselves. For some reason, the message does not resonate.

So I came up with the idea of ​​the “personal financial safety net” to try to help clear things up. You can visualize what I mean – if you’re a Cirque du Soleil performer, you need to have some guards (a net or a rope) in place, regardless of your athletic and performance skills.

From a financial perspective, here are six things that I think constitute a personal safety net.

  1. Basic knowledge of money

We have not formally taught individuals about money matters. Most households spend about two minutes a day managing their financial affairs. They cannot deal with money issues without having a basic understanding of money, how it works and how to use it effectively. We should encourage people to spend at least two hours a week improving their financial literacy. Time spent will pay big dividends. Industry can help get this message across by focusing on the need to spend more time learning about money.

  1. Develop a mindset of money awareness

When it comes to financial habits and discipline, you are what you think. An individual cannot be successful in their financial journey without having a money mindset. Financial actions must become second nature. Again, better education available should help consumers improve their mindset and daily habits.

  1. Adopt reflective practices

In my experience, when I talk with people and try to convince them that they need a cash flow plan or a budget, about 50% of them prepare to jump out of business. a cliff and the other 50% send me sweet messages on social networks. We need to teach budgeting and cash flow management a little differently. Budgeting and cash flow management should get people thinking about what they will earn and spend. Individuals need to take the time to ensure that they have more money coming in than going out and that they are saving funds for future needs and emergencies – including the reality that they are likely to experience long afterward. the end of their full-time job.

  1. Put in place insurance to mitigate risk

Insurance compensates for cash flow needs when the unexpected happens and provides cash in the future when it is needed. Whether it’s automobile, health, life, disability or accident; these covers provide cash for future delivery when needed. Overall, insurance coverage allows households to eliminate or minimize financial risk in exchange for a reasonable amount of money.

  1. Creation of an emergency fund

The pandemic has taught us that the unexpected happens in life. As part of the personal financial safety net, households should create an emergency fund to give them a cushion in the event that life gives unexpected and uninsurable twists such as illness, car repair unrelated to warranty , accident, severe weather events. or like in recent times – a pandemic. Having such a fund enables households to obtain the necessary resources to pay for unforeseen costs, which generally cannot be insured.

  1. Maintain the ability to earn independent income

The most important building block of an individual’s personal financial safety net is their lifelong ability to earn an income that pays for their living expenses. Decisions made about what kind of college or professional education to get, as well as continuing education and work experience, help create higher earning capacities. The income that can be generated on the basis of professional skills and experience lasts a lifetime and primarily dictates the household’s income. Without the ability to earn sufficient income, financial life can be problematic. Industry could help by encouraging retraining and retraining of workers.

Americans must become more financially self-sufficient. The national safety net will never become wide or deep enough to fully cover the costs of all the financial risks that households face. To enable households to be as successful and financially secure as possible, the industry must better educate consumers to spend the time necessary to build their personal financial safety net. It takes a little time, study and investment. It has at least six key dimensions. And it can change lives tremendously.

Being confident and relaxed about money matters in everyday life allows you to live life to the fullest. It is so important to enjoy the journey of life. The personal financial safety net really helps.

Harry N. Stout was Chairman of Fidelity & Guaranty Life, Deputy Managing Director of Old Mutual Financial Network and Managing Director of Insurance Insight Group. He is the host of the “FinancialVerse” podcast and author of FinancialVerse Personal Finance Books and of Annuities Today – A Tool to Create Lifetime Safe Income. He can be contacted at [email protected].

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