Economist: Lack of emergency funds leaves families vulnerable

Filipinos looking to build an emergency fund can consider both digital-first and traditional banks offering specialized savings products, often with higher interest rates than standard accounts.

- JOHN EIRON R. FRANCISCO

WITH low formal savings and heavy reliance on borrowing or remittances, many Filipino households are vulnerable to crises, making emergency funds critical, according to an economist.

“Kapag mababa o wala ka kasing emergency fund at dumating ‘yung panahon na meron kang matinding pangangailangan, mapipilitan ka kasing umutang,” Dr. John Paolo Rivera, senior research fellow at the Philippine Institute for Development Studies, told BusinessMirror in an exclusive interview.

[‘If your emergency fund is low or nonexistent and a major need arises, you will be forced to borrow.’]

Rivera explained that in such situations, households may have to either turn to lenders, sell essential items or assets, or cut back on basic needs such as food, medicine, household goods, and rent.

However, he warned that borrowing, especially through micro-lending, can worsen their financial situation due to high interest rates, which increase expenses and put further pressure on household budgets.

He noted that this vulnerability is compounded by historically low formal savings and limited emergency buffers among Filipinos.

Still, he emphasized that low savings do not necessarily mean a lack of intent to save. Many households prioritize daily expenses to meet immediate needs, leaving little room to set aside funds despite the desire to do so.

While some suggest setting aside 30 percent to 60 percent of income, Rivera said this is not always realistic, as financial capacity varies.

He added that there is no one-size-fits-all rule on how much people should save.

“Yung situation ng mga household na may kakayahan, mas malaki ‘yung kanilang savings relative sa kanilang kinikita,” he said. “Meron din naman tayong mga kababayan na maraming pinagkakagastusan upang maibigay ang pangangailangan ng kanilang mga anak at pamilya, kaya hindi rin natin sila masisisi kung limitado o mababa ang kanilang savings.”