Lessons from Cyprus

People line up outside a branch of Cyprus' Housing Finance Corp., a state-run bank that mainly helps low- and middle-income people, Friday in the capital of Nicosia.

You may not have paid much attention to the recent banking crisis on the small island nation of Cyprus, but the events there are worth pondering.

Could you manage for nearly two weeks with no access to your bank account?

That's what Cypriots were dealing with after their nation became the latest poster child of the European Union banking crisis. The banks were closed to prevent depositors from yanking all their money out, as plans to seize some of those deposits to pay for a bank bailout were considered.

Now, no one expects the government here to shut down banks and seize depositors' federally insured money, but for those of us in the hurricane-prone Lowcountry, what transpired in Cyprus is a good reminder that disasters can strike with little warning, be they man-made or natural.

If you're a person trying to buy food or fuel, it doesn't so much matter why the bank is closed and the ATMs are down; it just matters that they are.

The crisis in Cyprus offers good lessons about the need for long-term emergency funds, and the need to have at least some short-term cash available.

Cyprus is the latest reminder, as if we need another, that financial events far outside our control can blow up rather suddenly, trashing retirement plans, devaluing homes and causing job losses.

In Cyprus, banks were shut down for 13 days and ATM withdrawals were restricted as the government worked toward a European Union bailout.

Few could imagine such a scenario in the U.S., but a powerful hurricane is always a possibility, and could just as effectively shut down banks and ATM networks at least temporarily.

So, if the power went out for days and you couldn't use an ATM, or go to the bank, and might not be able to use debit or credit cards, would you be prepared?

Cash is king in a crisis, whether it's a long-term economic crisis like the recent deep recession, or a temporary crisis such as widespread power outages. (After Hurricane Hugo, power was out pretty much everywhere east of Interstate 95 in South Carolina, and for quite a while).

For long-term planning, being prepared means having an emergency fund ideally large enough to cover months of expenses. It's not easy to accumulate such a fund, as many folks have little to no savings, but it should be a goal.

Without a sizable emergency fund, people are extremely vulnerable to economic surprises. A job loss, a medical emergency, or a macroeconomic event such as the housing meltdown could mean financial ruin.

Conversely, those with large cash reserves are always waiting in the wings, able to take advantage of the inevitable downturns. Consider that nationally, nearly a third of home sales in February involved buyers who paid entirely in cash, most of them investors who were scooping up property at depressed prices, according to the National Association of Realtors.

For a short-term crisis, such as the weeks that could follow a major hurricane, having savings in the bank may not do. It's not a good idea to keep a large amount of cash in your home, but having a modest amount handy could make a big difference after a storm.

Assume your plastic — ATM, credit, debit and stored-value cards — could be useless for a few days, and assume that vendors could be limited in their ability to make change. A wad of $1 and $5 bills could be just the thing to have, along with the usual stockpile of food, medicine and emergency supplies.

In Cyprus during the first week banks were closed, shop owners who were interviewed in news reports said customers had cut back severely, buying little but food and cigarettes, because they were limited to the cash they had on hand when the banks closed.

So, whether you fear rogue bankers or extreme weather, it's always a good idea to have some money set aside for emergencies, and a way to get it when you need it.

Reach David Slade at 937-5552 or Twitter @DSladeNews.