by Brenda Campbell, President & CEO, Make A Difference – Wisconsin

This school year, I’ve been struck by the stories good and bad relating to young adults and liquid asset poverty. Liquid asset poverty is one of the biggest underlying threats to a young adult’s financial independence. Too often, they miss the mark and end up turning to credit cards, loans from family members, and even predatory lenders to get through a crisis. The results can haunt them for decades.

The problem is more than just a young adult issue. Nearly half (40%) of households in the U.S. have been deemed “liquid asset poor,” which means they don’t have a sufficient savings buffer to maintain (even at the poverty level) for three months without income, according to a report by the Corporation for Enterprise Development (CED). This group pegs Wisconsin households a bit better than the national average, though notes these financial issues tend to take on an even more dire status for households of color or when factoring in fast-rising costs for higher education.

For teenagers and young adults, the groups we work with directly, a problem as small as a car that won’t start one morning carries the potential to knock out lesser reserves. And from there, we continually meet young people who, in the absence of an emergency asset pool, turn to high-cost, short-term bailouts from a payday lender or a high-interest, low-ceiling credit card. The damage can quickly spiral from there.

Luckily, we’re able to reach thousands of teenagers every year (like Darius!) to prevent this very real challenge of liquid asset poverty. For starters, here are three steps every teen and young adult can and should take to prepare for the worst.

1) Get a plan: quite simply, you can’t prepare for the future very well if you don’t know where you’re at. That means setting a budget, assessing income and expenses, and establishing goals. In programs where we’ve worked with teens on these budgets, it’s remarkable how sensible and realistic their goals become once they set up this plan. Car payments and tuition aren’t as scary once they’re out in the open.

2) Stay on track: it may seem obvious to us, but teenagers are typically just learning what it means to stay within a budget – and what it means to stumble with spending. Once you have the plan from Step One, you’ll have a clearer outline of needs and wants. Which leads to the third step …

3) Look ahead: as part of Steps One and Two, dedicate a realistic amount from each check toward a “rainy day” fund. Then, don’t touch it! The more you’re able to pack away when it comes to emergencies, the better prepared you’ll be for anything that comes up. Darius, a graduate of our Money Coach program, came up with creative ways to segment savings for various emergencies. Even a small amount of savings can pile up, particularly if you start putting away money early on. (If you’re looking for a way to gauge your liquid asset level, check out this calculator from the CED.)

One final thought on liquid asset poverty: this is an issue across income levels. We always seem stumped by the stories of superstar athletes or celebrities who go broke, but their issue is the same experienced by many middle class families in the suburbs, or inner city teens out on their own for the first time. It comes down to living within your means. Especially early in your financially independent life, there are a few simple, consistent steps that can prepare you for whatever may come.