Every day our nation faces some risk whether it be from flooding, earthquakes, wildfires, hurricanes, tornados or other threats. While none of us want to think that the next disaster will happen where we live, the fact is our communities can never truly be prepared for disasters if the people who live in our communities are not.
One of FEMA’s core missions is to educate the public on disaster preparedness, both at home and in the community, and the results are encouraging. Every year, more Americans are taking preparedness actions. But, we need to address an essential component of the preparedness message — savings and insurance.
We need individuals to take charge of their own preparedness both at home and in their communities. It starts with discussing the importance of financial health and its relationship to being ready. Americans must adopt the habit of saving for emergencies, both large and small. An emergency fund can help cover evacuation expenses or pay for supplies to get a home ready for a hurricane. After a disaster, these funds can be used to replace damaged items or pay for necessities before an insurance company can settle a claim.
Research paints a compelling picture of the link between financial wellness and disaster preparedness. We also know that emergency savings make a big difference in helping families recover more quickly after disasters. However, a 2017 Federal Reserve report found 40 percent of adults would not have the cash readily available if faced with a $400 emergency expense. Additionally, a 2017 survey by the Federal Deposit Insurance Corporation found that 8.4 million households in the United States have neither a checking nor savings account.
So, at a time when the evidence points toward the importance of savings, many Americans are not in a position to act. Even those who do have bank accounts often do not take the action of ensuring they have immediate access to cash at home. Having liquid assets in the bank and cash at home are both essential steps in building a prepared household. ATMs and credit card machines might not be functioning after a disaster and you will likely have to use cash for food, water or fuel in the immediate aftermath.
Americans should focus on building up their financial wellness to protect themselves and their families. FEMA and its financial wellness nonprofit and private sector partners continue to share messaging and resources that can be used to help build financial resilience in communities. Through PrepTalks “Financial Literacy and Overcoming Liquid Asset Poverty,” and the FEMA Podcast “Making ‘Cents Out of Disaster Financial Preparedness,” we have compiled resources to provide individuals and communities a greater understanding and awareness of financial resilience.
We continue to share the message of the importance of saving, but we also have to expand the definition of financial preparedness. A large part of protecting every family’s financial future is insurance. There is not a more important or valuable disaster recovery tool than insurance. This of course includes flood insurance, which is usually not included in standard homeowners’ and renters’ policies. But it’s not just flood insurance. All types of insurance have a role to play in reducing financial risk. Unfortunately, we have an insurance gap (the difference between what is insured and what is insurable) in this country; approximately 70 percent of disaster losses are uninsured. Those who lack insurance will take longer to recover — and some may never fully recover–adding further stress after a disaster.
Survivors working toward their recovery should understand that FEMA’s Individual Assistance program grants were never intended to cover all disaster losses. The average FEMA Individual Assistance grant to disaster survivors in Texas following Hurricane Harvey was approximately $3,000. The average flood insurance payout was more than $117,000.
Enhancing financial preparedness and closing the insurance gap can help reduce the impacts of disasters. We have to get ahead of the risks we may face and not just respond to them. Making a more resilient nation must be a shared goal, and a shared responsibility.
Daniel Kaniewski, PhD, serves as FEMA’s deputy administrator for resilience and is currently FEMA’s second-ranking official.