Floods, Fires and Other Disasters: Teaching Consumers to Prepare Financially

The FDIC has been working in various ways to address the needs and concerns of customers in the Gulf Coast region devastated last year by Hurricanes Katrina and Rita. Those efforts included staffing a 24-hour call center to respond to banking-related questions from victims and, in February and March of 2006, hosting a series of meetings in the affected states to determine what more could be done by bankers and their regulators to help rebuild affected communities. Among the lessons learned: Families everywhere need to prepare financially for the possibility that a flood, fire or similar event could force them to evacuate their home at a moment's notice and have to conduct essential financial transactions under emergency circumstances, sometimes hundreds or thousands of miles from home.

Money Smart News is encouraging financial educators to think about how they can incorporate disaster preparedness into their lessons. Key topics can include why and how to:

Have forms of identification readily available in an emergency. These primarily include driver's licenses (or state ID cards for non-drivers), insurance cards, Social Security cards, passports and birth certificates. Originals are best, but copies are better than nothing. "Louisiana residents without a driver's license or state-issued picture ID after the hurricanes had problems getting financial assistance from FEMA (the Federal Emergency Management Agency) because they could not prove who they were," said Eloy Villafranca, the FDIC's Community Affairs Officer in Dallas.

Prepare one or more emergency evacuation bags. Use them to store first aid kits, prescription medications and other items need for personal safety, but also include essential financial items, such as some cash, checks, copies of your credit cards and identification cards, a key to your safe deposit box, and contact information for your financial services providers. The bags should be waterproof, easy to carry, and kept safely at home (but in a place you'll be able to remember and access in an emergency).

Review insurance coverage. Families should have enough insurance, including flood insurance, to cover the costs to replace or repair a home, car and other valuable property.

Commit to a savings program that includes building a "rainy day" fund. Everyone should save for long-term needs; they also should put aside money in an emergency fund that can be tapped to get through difficult times -- anything from a natural disaster to a job loss or medical emergency -- without having to take out a loan or borrow from retirement accounts. This special fund, which can be built up gradually in various types of savings accounts, eventually should equal to about three to six months of living expenses. "It becomes your own financial insurance policy," said Dorothy Brown, an FDIC Community Affairs Specialist based in Chicago. "And if you never use it, you will have that much more money set aside for emergencies."

Clinton Vaughn, the Community Affairs Officer in the FDIC's Memphis office, noted that while the FDIC's financial education curriculum doesn't specifically address a disaster situation, "Money Smart is very clear and effective on successful ways to save, budget and prepare for unexpected outlays of cash." Vaughn, whose FDIC territory includes the storm-stricken states of Louisiana and Mississippi, recalled that after the recent hurricanes "many of the victims were calling hot lines and going to public forums asking for debt relief or other help paying their mortgages or car loans."

Brown, who has been temporarily assigned to the FDIC's Memphis office to assist in the hurricane relief efforts, agreed on the importance of encouraging people to increase savings in general. "While saving for emergencies may not always be a priority for people," she said, "the Gulf Coast disaster is one example where people could have benefited from having any type of savings."

Consumers, bankers and financial educators who want more information about preparing for or responding to a disaster can find useful materials on the FDIC's Web site. Go to www.fdic.gov/hurricane/index.html for a central page with an assortment of material from the FDIC and other sources primarily aimed at helping victims of Hurricanes Katrina and Rita. Also, the Winter 2005/2006 issue of the quarterly newsletter FDIC Consumer News features a guide to being ready to deal with the financial challenges of a disaster, such as having access to cash, banking services and personal identification needed to conduct day-to-day money matters after a disaster. It is available online at www.fdic.gov/consumers/consumer/news/cnwin0506. FDIC Consumer News may be reprinted in whole or in part without permission from the FDIC.