Emergency Fund Questions Your Student Might Ask (and How to Answer Them)

As a Foundations in Personal Finance teacher, you’ll teach your students crucial money lessons, including the need for an emergency fund! In our crazy, unpredictable world, saving up for the future isn’t just important—it’s absolutely necessary. And you can be the one to make sure they never feel unprepared for the ups and downs of life.

But students (and even adults) who are learning about the emergency fund for the first time are bound to have plenty of questions. Here are some of the most common emergency fund questions that your students will probably ask you at some point this semester—and the best ways to answer them.

1. Is $500 really enough for an emergency fund?

When your students hear about the First Foundation, they might think $500 sounds like a ton of cash. Or they might think it sounds like it couldn’t possibly be enough to cover a real emergency.

Here’s the deal: Most emergencies that teenagers will have won’t be quite as expensive as the ones they’ll have to pay for later when they’re out on their own (unless they get grounded and their parents decide to make them cover the next plumbing disaster or something). Teens are dealing with stuff like flat tires, not replacing the A/C unit in their home—so in most cases, $500 should be plenty. Reassure them that later on, when they start working the actual 7 Baby Steps plan, they’ll save three to six months of expenses in their fully funded emergency fund. That will prepare them if a bigger crisis comes their way.

2. When is it okay to use my emergency fund?

Anytime you see something you want to buy! Just kidding. There are three main questions your students should ask themselves when it comes to actually spending the money in their emergency fund:

• Is it unexpected?
• Is it necessary?
• Is it urgent?

If they can answer “yes” to those questions, it looks like they have a genuine emergency on their hands and it’s fine to dip into that fund. But if they want to buy the new Taylor Swift album so they can listen to the whole thing to impress their crush who’s a die-hard Swiftie, then that’s definitely urgent—but not necessary. Womp womp.

3. Can investments count as my emergency fund?

If your students already have an IRA that a family member opened for them, or if they’ve ventured into investing on their own, they should know that whatever money they have in their retirement accounts does not count as an emergency fund. Once they put money in a retirement account, it should stay there so they’ll become millionaires sooner! An emergency fund should be accessible and ready to use, so it should definitely be separate from any investments.

Remind your students that their emergency fund is like insurance for when things go wrong. Investments are to help them build wealth for the future.

4. Where should I keep my emergency fund?

A classic, no-nonsense savings account at the bank is the best place for that $500. That way, your students won’t be tempted to spend it the same way they might be if it were in a checking account that’s used for everyday spending. But their emergency cash is still easily accessible (not under a mattress or locked away in a safe) if something bad were to happen and they needed it right away.

Are you a teacher? Help your students win with money today!

If your students don’t have a savings and checking account set up yet, encourage them to talk to their parents about doing that as soon as possible. Having those accounts is a huge part of learning how to manage money well! Starting at age fourteen, they can open accounts at most banks with a parent or legal guardian as a co-owner until they turn 18.

5. How do I build my emergency fund?

It can be overwhelming for some teens to think about saving up $500, and they might be wondering where to start. Lucky for them, there are plenty of ways for them to stack that cash (plus, they have fewer expenses to deal with than the average adult)! And if you give them some ideas to get them started, they’ll have that emergency fund in no time. Here are some great ways to start building:

• Get a job. Thank you, Captain Obvious. But seriously, your students should know that their number one wealth-building tool is—guess what—their income. Getting a part-time job at a movie theater, roller-skating rink, yogurt shop, pet store or other fun place is a really rewarding way to build a resumé, develop some skills and, of course, start earning and saving their own money.
• Start a side hustle. The side hustle is like the part-time job’s quirky younger sibling. It’s usually more flexible and more entrepreneurial in nature than a regular job: think owning an Etsy shop, walking dogs, nannying or tutoring kids. If they’re really focused on their $500 goal, some of your students might decide to have a part-time job and a side hustle at the same time (those are the teens who are going to be our bosses one day).
• Sell some stuff. Encourage your students to take inventory of the clothes, books, electronics and other things they have lying around that they don’t need anymore, and get rid of it on Facebook Marketplace, Craigslist, eBay or another online platform.
• Save Christmas and birthday money. And any other money from generous, loving family members.
• Make a budget and stick to it. The easiest and most commonsense way to save money is by having a zero-based budget. That means your students should total up their income for the month, list out all their expenses for the month (including a category for their emergency fund savings), and subtract their total expenses from their total income. The result should be a big, fat zero. Then they can easily track their purchases throughout the month with a budgeting app like EveryDollar to make sure they don’t overspend in any of their budget categories. When every dollar of their income has a job to do and they see it all written out in black and white, they’ll be able to see where they can cut back in order to put more money toward their emergency fund.

The best part of teaching your students about the emergency fund is the peace of mind they’ll have knowing they’re prepared for whatever might come their way. And right now, that peace of mind is something we could all use a bit more of. Thanks for being that much-needed voice of reason for your students!

Check out Vivian’s Teacher Spotlight to find out how they’ve been handling the emergency fund topic in their classroom!