It’s understandable that as most Americans focus on the COVID-19 pandemic, the risk of natural disasters may not be top of mind. However, with the upcoming Atlantic hurricane season expected to be more active than usual and tens of millions of Americans in a more financially precarious position over the last couple of months, it’s more important than ever to prepare. Recently published AICPA data found that 6 in 10 Americans (60%) say it is likely a natural disaster will impact them in the next three to five years. And while many Americans have taken at least one step to prepare, there are still more ways to help protect their finances and their families should disaster strike.
Neal Stern, CPA, member of the AICPA’s National CPA Financial Literacy Commission, spoke with AICPA Insights about emergency preparedness and the AICPA survey results.
Why is a disaster plan important?
Neal Stern: We’ve all become painfully aware from recent disasters, ranging from hurricanes, floods and wildfires, that devastating financial losses from unexpected events are a matter of “when” and “how severe” rather than “if.” It is concerning that the survey found that only 15% of Americans have a plan to protect their finances from disaster since lack of a plan leaves people vulnerable to losses they may not be able to manage. And these damages to financial wellness can negatively affect their lives for years to come. In the face of a natural disaster, having a plan will help to ensure you can focus on what's most important: protecting your family from harm, while also minimizing the financial impact.
Why is it important to understand how much recovering from a natural disaster would cost?
NS: You’ll need an idea of the costs you might face from a natural disaster to make sure you have adequate resources to manage near-term expenses and work through the process of recovery and rebuilding. With nearly 4 out of 10 Americans (37%) lacking a good sense of what it would cost them to recover from a natural disaster, a large number of people don’t know whether they’re financially prepared for the next unexpected event or how large their protection gap may be. Before facing the stress of substantial costs, it pays to think about how much money you would need in an emergency fund to cover at least three months of expenses. And taking inventory of property that could be damaged or destroyed is the first step to making sure your insurance is adequate and up to date.
In what ways is the COVID-19 pandemic affecting the disaster planning process?
NS: Disruptions from the COVID-19 pandemic bring a layer of complications to the process of disaster planning, making it especially important for those who don’t have an effective plan to get a head start. For example, if you need to review and update your insurance coverage, your agent may be working remotely or have limited hours by appointment only as a result of pandemic-related restrictions. You may also need to adapt your disaster recovery plans — for instance, the safe deposit box containing your important documents may be within a bank branch that’s closed. It pays to get an early start in checking on how the pandemic may have affected your access to the resources you’ll need and what options may be available.
What advice do you have for Americans who feel overwhelmed at the prospect of putting a plan together?
NS: With just over a quarter of Americans (27%) not having taken any steps to prepare for a natural disaster, some people may be overwhelmed by the task of developing a plan, and there’s a natural tendency to just hope it won’t happen to you. Unfortunately, the COVID-19 pandemic provided a dramatic reminder about the impact of unexpected events. Often, the most difficult part of an important project is the first step — just getting started. And there are simple steps you can take now to help minimize the impact of a natural disaster.
The AICPA has resources to get Americans ready for the impact of this year’s hurricane season and other natural disasters. Read an outline of five key steps to help protect your family and finances at 360financialliteracy.org/BePrepared. Share this valuable information with friends, family members and clients to help them protect their families and their finances.