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Are You Financially Resilient?

May 2007

Barbara O’Neill, Ph.D., CFP
Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension

The words “resilience” and “resiliency” have been used frequently since the events of September 11, 2001. Children, families, communities, and the nation as a whole have all been described as resilient, or having the ability to function well and maintain a positive outlook despite experiencing highly stressful events. In everyday language, resiliency is the ability to “roll with the punches” and carry on despite life’s setbacks.

Financial resilience is the ability to withstand life events that impact one’s income and/or assets. Some financially stressful events, such as unemployment, divorce, disability, and health problems affect people individually. Others, such as recessions, stock market downturns, and acts of terrorism, affect society as a whole.

Financial resiliency is enhanced with financial resources, such as savings, health insurance, and a good-paying job. Another resource for financial resiliency is one’s human capital, which economists define as all of the knowledge, skills, experiences, and other personal qualities that people have to “sell” to potential employers.

Social capital also increases financial resiliency. This includes a support system of family, friends, co-workers, neighbors, and others that can provide financial assistance, not to mention emotional support, during hard times.

Following many of recommended financial practices found in Small Steps to Health and Wealth™ can also increase financial resiliency. Below are five examples:

  • Maintain a low debt-to-income ratio. Monthly consumer debt payments (e.g., credit card bills and car loan payments) should be 15% or less of monthly take-home pay. Example: $275 of debt payments divided by $2,500 of net pay equals a consumer debt-to-income ratio of 11% (275 divided by 2,500).
  • Maintain an emergency fund of at least three month's expenses. Keep this money liquid in cash equivalents such as a credit union, money market mutual funds, or short-term CDs.
  • Never consider your education or job training finished. Continue to develop new marketable skills to increase human capital and remain employable in today's competitive labor market.
  • Purchase adequate life insurance to protect dependents against the loss of a breadwinner's income and disability insurance to provide continued income following an accident or illness.
  • Increase your knowledge of financial topics so that you make smart financial decisions. To learn more about basic investment principles and characteristics of specific securities (e.g., mutual funds), visit Rutgers Cooperative Extension's Investing for Your Future home study course Web site at Other Cooperative Extension financial education resources can be found in the Personal Finance section of