More than 60% of Americans said in a recent poll they believe they will likely be personally affected by a natural disaster, such as a tornado, flood, earthquake, or wildfire in the next three to five years. And although 73% have taken at least one step to plan for a disaster, such as assembling food and first-aid supplies, a Harris Poll conducted on behalf of the AICPA found that only 15% of Americans have created a disaster plan specifically to protect their finances.
The survey, the results of which were released Wednesday, was conducted in the fall of 2019, prior to the COVID-19 pandemic. Of the 2,050 adults who participated, 71% said a natural disaster would have a major or moderate impact on their financial health, and 37% said they actually didn’t have a good sense of how much it would cost their families to recover financially from such an event.
The survey found that less than a third of Americans had:
- Backed up their personal, financial, and medical documents and put them in a safe place (31% had);
- Reviewed their insurance to make sure they have adequate coverage (27%);
- Taken an inventory of their assets and belongings in case the items were damaged (26%);
- Created an estate plan or will (19%); or
- Contributed to an emergency savings account (24%).
Steps such as these, however, can help families be prepared for the financial impact of a natural disaster.
When contemplating a disaster preparedness plan, try not to become overwhelmed, said Margaret Poster, CPA, a member of the AICPA’s National CPA Financial Literacy Commission.
“One of the most important things to keep in mind is that disasters can be overwhelming, making it difficult to anticipate and make adequate plans,” she said. “I think the best advice is to keep it as simple as possible. Try to focus on the disasters that are most likely to impact you and your family, particularly in the near term. What are the three biggest issues that worry you? Focus on addressing those, rather than trying to anticipate and plan for everything at once.”
It’s also important to communicate plans to other family members or a trusted agent just in case you’re hurt or otherwise unable to pass along key information, she said.
Put vital information — including financial plans, insurance documents, and contact information — in writing in a safe place, and let a trusted person know where it is, she said.
“Then, if you’re unable to respond immediately, in an emergency, you have someone to rely on who can act on your behalf,” Poster said, adding that you may want to consult with an attorney on your plans or documents.
The COVID-19 pandemic has created financial uncertainty for many families, which could make planning more difficult for families to handle alone, Poster said.
She advised that individuals stay on top of their financial outlays during the pandemic. “If COVID-19 has put a dent in your resources, keep track of money you have spent that was set aside for other contingencies,” she said. “When this crisis has passed, you can then set a goal to replenish those savings and develop a plan to get there.”
“This pandemic has also given many people a new perspective on their spending habits, so this may also be a time to reassess certain expenses that are no longer as important to you,” she added.
The AICPA’s 360 Degrees of Financial Literacy provides free financial planning tools, including a guide to creating a disaster plan that includes steps to protect families’ finances. For more information, visit 360FinancialLiteracy.org/BePrepared.
— Samiha Khanna is a freelance writer based in North Carolina. To comment on this article or to suggest an idea for another article, contact Ken Tysiac, the JofA’s editorial director, at Kenneth.Tysiac@aicpa-cima.com.