This research was produced by the Financial Health Network, a collaborator in BlackRock’s Emergency Savings Initiative. The Financial Health Network is a trusted resource for business leaders, policymakers, and innovators united in a mission to improve the financial health of their customers, employees, and communities. Through research, advisory services, measurement tools, and opportunities for cross-sector collaboration, the Financial Health Network advances awareness, understanding, and proven best practices in support of improved financial health for all.

Key Findings

• People who were not saving for emergencies near the start of the pandemic were three times as likely to turn to friends or family for financial support (15% vs. 5%) as people who were saving.
• People who were saving for emergencies and accessed resources from family or friends were associated with a 25% lower risk of hardship.

During the COVID-19 pandemic, families came together to support one another and try to minimize the risks of severe financial hardship. Making loans and borrowing from family members helped to buffer the impact of the worst financial shocks, allowing people to navigate a period of extreme uncertainty. 

New analysis of Financial Health Pulse® data by BlackRock’s Emergency Savings Initiative shows that those who were not saving were much more likely to rely on family and friends financially during the pandemic. Borrowing from family members and building emergency savings are deeply connected; both can act as a defense against the worst financial effects of a shock like COVID-19. 

In this brief, we assess how people used borrowing, lending, or giving to family and friends (referred to as “family borrowing”) to get through the pandemic. We include people asking for help to cope with the effects of the pandemic or the costs of medical care, as well as people giving to friends and family from their stimulus payments, to provide assistance, or as remittances abroad. Giving to and borrowing from family and friends is just one way that families can support one another financially, and this practice has been especially vital for people earning low and moderate incomes (LMI) to help them weather the pandemic with their families. 

It’s important to note that family borrowing did not erase hardships entirely for people during the pandemic, however. Supporting the creation of emergency funds for individuals as well as reducing barriers to family borrowing can help more people cope when financial shocks arise.

During the Pandemic, Saving for Emergencies Reduced the Risk of Hardship

Financial shocks such as lost work and childcare challenges led to financial hardship for many during the pandemic. Analysis of Financial Health Pulse survey data revealed that 23% of people experienced financial hardship in the past year, including food insecurity, housing insecurity, or unmanageable healthcare costs.

Emergency savings can help to alleviate the risk of hardships by providing a financial cushion for difficult times. Pulse data showed that the risk of hardship declined by 3 percentage points among those who saved for emergencies (23% vs. 26%) after controlling for fixed effects, such as gender and race, and changes in income and expenses. For the 53% of the population who were saving for an emergency in 2020, the lower risk of financial hardship significantly reduced negative experiences. 

Turning to Family and Friends as an Emergency Resource

For those who did not have access to emergency savings in 2021, family borrowing served as an alternative source of emergency funds. In our analysis, we found that people who were not saving for emergencies in spring 2020 were 3 times as likely (15% vs. 5%) to have borrowed from family or friends in the past 12 months. 

However, the relationship is not a simple one. The analysis also revealed that people who were not saving for emergencies were just as likely as those who were saving to financially support their family members. In fact, 40% of both groups – savers and non-savers – reported providing financial support to family members last year.

Further, many people who don’t have emergency savings fell into both categories – they were supporting family members and also borrowing from family members during the year. More than twice as many people who were not saving for emergencies both borrowed from and supported family, compared with those who were saving (8% vs.3%). This underscores the complex dynamic between saving formally, accessing financial institutions, and tapping family as an emergency resource, suggesting people must often make tricky financial trade-offs.

Family Borrowing Could Reduce Immediate Hardship, but Not Stress 

Financial support from family can be a crucial lifeline to reduce the worst effects of emergencies or financial instability, and might also help people avoid hardship in the first place. In our analysis, we found that respondents who borrowed money from family to cope with the COVID-19 pandemic were 17% less likely to experience hardship between spring 2020 and spring 2021, after controlling for fixed effects and changes in income and expenses. This means that the likelihood of experiencing hardship declined on average from 25% to 21% if they borrowed from family.

However, borrowing from family members was not a silver bullet for those struggling to make it through during COVID-19. Those who borrowed from family members to deal with the effects of COVID-19 were likely to have slightly lower financial health scores than those who didn’t borrow. They also experienced higher financial stress. This means that while borrowing from family members helped people to avoid the worst of a financial emergency, it did not drive a recovery in financial health scores. 

Two Lines of Defense in Weathering Shocks

Having access to both emergency savings and financial support from family members can provide multiple layers of security in case of a financial shock. Someone who is saving for an emergency and is able to borrow from family members is 7 percentage points less likely to experience financial hardship than someone who is neither saving nor able to borrow.

Family Borrowing Alone Cannot Avert All Hardship

Although family borrowing can reduce the risk of hardships, it does not relieve them completely. This practice is also concentrated among those who are most at-risk, such as households earning low and moderate incomes (less than $60,000 per year). Our analysis showed that those households were more likely to borrow from family or friends outside of the household than people earning a higher income (16% vs.5%). They were also more likely to experience hardship (35% vs. 10%).

People who did experience hardship were six times as likely to borrow from their family members outside of the household as those who did not experience hardship (30% vs.5%), but also nearly 30% more likely to lend support to family outside the household (50% vs.40%). The concentration of support among those in the worst financial situations suggests that family borrowing is an important component of financial health for people who may not have other sources of safe, secure, and affordable emergency funds. However, family borrowing is not sufficient alone to prevent hardship altogether. While emergency savings can be a preventive measure to avoid hardship, support from friends and family is a more reactive remedy.

Supporting Emergency Savings And Family Borrowing Can Strengthen Safety Nets 

Understanding the pathways of mutual support among family and friends is vital to supporting traditionally underserved communities. However, financial support between households can only do so much to avoid the worst impacts of financial shocks. 

Helping people balance their own emergency savings behavior and financial interactions with family or friends can create a strong safety net for families as they face future challenges. Two ways that financial institutions can support families in this balancing exercise are to increase access to emergency savings for individuals and families, and to reduce barriers to family giving and borrowing. These solutions can work together to better prepare families for emergencies like the pandemic. 

Methodology Notes

Data in this report come from the Financial Health Pulse Survey Q2 2020 and Q2 2021 waves (April – June 2020 and April – May 2021) . These surveys were both fielded to USC’s nationally representative Understanding America Panel (UAS), allowing us to assess the responses of individuals who participated in both and change over time. The final sample included in this analysis was 5,254 individuals over 18 years old. In this analysis, we define “borrowing” as people asking for help to cope with the effects of the pandemic or the costs of medical care, and “giving” as giving to friends and family from their stimulus payment, to provide assistance, or as remittances abroad. We consider people to have been saving in 2020 if they answered that they were “currently saving for an emergency” during the 2020 survey. All models were run as fixed effects (OLS) regressions using a balanced panel across the two survey waves, controlling for changes in income, expenses, and family structure. Financial health was measured according to the Financial Health Network’s FinHealth Score® methodology. 

BlackRock’s Emergency Savings Initiative

BlackRock announced a $50 million philanthropic commitment to help millions of people living on low to moderate incomes gain access to and increase usage of proven savings strategies and tools – ultimately helping them establish an important safety net. The size and scale of the savings problem requires the knowledge and expertise of established industry experts that are recognized leaders in savings research and interventions on an individual and corporate level. Led by its Social Impact team, BlackRock is partnering with innovative industry experts Common Cents Lab, Commonwealth, and the Financial Health Network to give the initiative a comprehensive and multilayered approach to address the savings crisis.