by John H. Robinson
John H. Robinson is a Honolulu-based financial planner. He has written and published numerous peer-reviewed professional papers including the CFP Board of Standards 2008 Outstanding Paper Award winner and the 2010 International Foundation for Retirement Education Best Paper Award winner, both of which he co-authored with the University of Hawaii's Shidler College of Business. He has been in the planning profession since 1989.
Executive Summary
- Despite the media attention in the wake of several recent natural disasters, emergency planning and disaster preparedness remain relegated to the backwaters of financial planning. This paper argues that the topic merits the same level of consideration in the client-planner dialogue as other holistic planning topics, such as estate planning, asset protection, and insurance risk management.
- The author suggests that a distinction be made between emergency planning and disaster preparedness and that both be considered sub-topics under the broader heading of crisis management.
- This paper introduces advisers to a number of resources to help them build a knowledge base and offers a basic framework for developing a crisis management plan for individual families.
- The author contends that many of the planning strategies recommended by leading public institutions, such as the Federal Emergency Management Association (FEMA) and the American Red Cross, are not best practices, and suggests that there is a need for greater critical thinking.
- Although some may contend that crisis management is outside the realm of financial planning, this paper shows that certain aspects of it are directly germane and suggests that financial planners are uniquely positioned to raise client awareness, even if such issues are beyond the planner's normal range of expertise.
As happened in the wake of Hurricane Katrina; the recent earthquake in Japan; the tornados in Mississippi, Tennessee, and Massachusetts; and the engineered flooding in Louisiana have focused a spotlight on emergency planning and disaster preparedness. However, despite extensive media attention, crisis management remains relegated to the backwaters of financial planning, with only a small minority of planners incorporating it into their practices. Reasons for this are likely varied. For some advisers, reluctance to include crisis management in the planner-client dialogue may be attributable to negative perceptions and stereotypes of "survivalists." Other advisers may argue that it is beyond the scope of the planner's expertise or that, as important as it may be, it is outside the realm of financial planning.
A review of both recent news articles and scholarly literature shows that "emergency" and "disaster" are often employed interchangeably. However, although these two terms are certainly related under the broad heading of crisis management, they are not perfectly synonymous, and the financial planning community would do well to formalize this distinction. Specifically, "emergency" is implicitly associated with urgency and the need for a short-term response, and "disaster" invokes images of prolonged or permanent devastation. From a professional planning perspective, it seems sensible to define "emergency planning" as an action plan or set of plans for helping families respond quickly and rationally to potential crises and to define "disaster preparedness" as more of a checklist of items a family might need to manage a particular prolonged crisis.
The fact that agencies such as the Federal Emergency Management Association (FEMA) and the American Red Cross have devoted significant resources to educating the American public about how to prepare for various threats suggests that crisis management merits mainstream consideration. According to FEMA, an average of 50 natural disasters of varying scale occurs each year in the United States, and no locations are immune to such threats. The notion that the topic warrants household-level discussion is bolstered by recent public comments from Dr. Jonathan Links, director of Johns Hopkins Center for Public Health Preparedness, who noted in an ABC News interview that although the federal and state governments have preparedness plans in place, most American families are ill-prepared to respond to catastrophe. This sentiment is echoed by director of the National Center for Disaster Preparedness Dr. Irwin Redlener, who in a 2008 paper in the journal Social Research stated, "What has been surprising, and, to a large extent disconcerting, has been an appreciation developed since 2001 of the complexity and inadequacy of societal preparation for, mitigation of, and recovery from very large-scale disasters." This paper seeks to introduce the planning community to the topic in greater detail and argues that it merits inclusion in the profession alongside other standard non-investment-related topics, such as estate planning, asset protection, and insurance risk management.
Financial Preparedness
Despite the position of some advisers that crisis management is beyond the realm of financial planning, there are a number of aspects to protecting one's finances in the face of a crisis that are clearly germane to the planning function. For instance, many emergency planning publications and websites suggest keeping a certain amount of cash on hand in the event that banks and the networks that operate credit cards and ATM machines are not operational. There does not appear to be any widespread agreement on the amount of emergency cash one should have and there is no empirical research guidance on a "proper" allocation percentage or dollar amount, but the consensus seems to be in the $100-$1,000 range. The desire to keep more than that amount on hand must be balanced against the obvious security risks of keeping large sums of cash in one's home or automobile. Incorporating such guidance into the existing dialogue should be relatively simple. To the extent, that the planner has already determined an appropriate allocation for normal liquidity and emergency reserves, suggesting that clients allocate some sub-set of these reserves to physical currency is an easy step that allows the clients to personalize the amount based upon their circumstances and perceived vulnerability.
Another important financial preparedness step that is regularly recommended in social science publications and leading online crisis management websites is to preserve copies of important family financial information. Bank, brokerage, and real property records are commonly referenced items for inclusion, but a comprehensive best practices checklist should likely also include such items as copies of driver's licenses, passports, Social Security cards, estate planning documents, credit cards (front and back), appraisal records, birth and marriage records, medical records, and insurance information. Although preparedness publications and websites commonly suggest making physical or digital back-up copies of this information and storing them at a location away from one's home, such as in one's office or in a safe deposit box; an alternative back-up storage solution that warrants best practice consideration is to subscribe to a web-based online vaulting facility. In addition to being arguably more secure than many non-bank brick-and-mortar storage facilities, this solution lends itself well to regular updating and allows 24/7 access to one's data from anywhere on the planet where there is Internet service. (Although not directly related to one's finances, family photos are often priceless and irreplaceable, and also lend themselves well to such online archiving.)
On the more extreme end of the financial preparedness spectrum, the financial crises of the past decade have led some Americans to consider hoarding gold and silver bullion and coins. Although these instruments may be suitable as low-correlation diversifiers or as tool for hedging against inflation for a portion of an investment portfolio, the practicality of using precious metals as a form of currency during a prolonged crisis is debatable, and the likelihood of an apocalyptic event that would create such circumstances is low. Intuitively, the notion that gold bullion or coins such as Krugerrands, Maple Leafs, or American Eagles will become standard currency seems far-fetched, as one can envision the difficulty of a task as simple as making change. That said, some entrepreneurial bullion dealers have taken to selling 1-ounce bars divisible into one-eighths or one-tenths denominations for this very purpose. As suggested by famed Wall Street economist and author of the 2008 survivalist tome Wealth, War, and Wisdom, Barton Biggs, the greater likelihood in such a dire, extreme environment is that a barter system would prevail and that basic materials such as food and water would reign as the precious commodities of the day. As with hoarding cash, the potential benefits of storing large quantities of precious metals at one's home must be balanced against the security risks (fire, theft, tornado, etc.). Similarly, a few purveyors of crisis management guidance also recommend establishing foreign bank accounts to provide security abroad in the event of a domestic financial collapse. Again, the probability of an event that would require such a safe haven is generally regarded as extremely low, although if one regularly travels to a particular country or foreign region, it might be a rational planning step in the context of other financial objectives.
Literature and Resources
A financial planner's foray into providing crisis management guidance necessarily begins with a foundation of knowledge beyond just the cursory information and tips provided by the popular press. For those financial planners who wish to become better informed on crisis management issues, scanning the existing body of published academic and professional research is a logical place to start. Although there is a paucity of published research in traditional finance journals, there is a trove of literature in social science publications. Although a preponderance of this material is written for public policy officials, health organizations, and large corporations, a considerable volume of information may be useful for grassroots-level individual planning. One such paper is "Disaster Preparedness: Concepts, Guidance, and Research" (2006) by Jeannette Sutton and Kathleen Tierney of the University of Colorado's Institute of Behavioral Science Natural Hazards Center. The report provides exhaustive professional insight into all levels of planning and contains an extraordinarily detailed 18-page Household Preparedness checklist (see the Appendix for an abbreviated version of such a checklist).
Another suitable piece is "The 2008 American Preparedness Project: Why Parents May Not Heed Evacuation Orders and What Emergency Planners, Families, and Schools Need to Know." This paper, produced by Columbia University's Mailman School of Public Health, highlights important findings from a 2008 preparedness survey. The introduction to the paper notes, "Current and trend data from these surveys reveal a disjuncture between Americans' awareness and sensitivity to possible natural and man-made threats and their consistently low levels of personal preparedness." The surveys reveal that approximately half of parents do not know the location to which their children would be evacuated as part of their school's disaster plan. The survey data also found that only 44 percent of families have all or some of the basic elements of a disaster preparedness plan.
In addition to published academic research, a wealth of important crisis management information is available on public websites. FEMA (www.fema.gov) and the American Red Cross (www.redcross.org) are probably the two best-known resources, and both contain a tremendous amount of important family-specific guidance. Other useful resource sites include the aforementioned National Hazards Center (www.colorado.edu/hazards, which serves as a clearinghouse for preparedness research), the National Center for Disaster Preparedness (www.ncdp.mailman.columbia.edu), and the Johns Hopkins Center for Public Health Preparedness (www.jhsph.edu/preparedness).
A Planner's Starting Point: Hazard Identification
According to the aforementioned treatise by Sutton and Tierney, identifying the most likely threats is the starting point for building a family-centered crisis management plan. Table 1 lists many of the national and man-made threats, categorized by geographic scale, referenced on institutional and governmental crisis management websites.
Table 1 Types of Emergencies
|
Local |
Regional |
National/Global |
|
House fire |
Power outage |
Pandemic/epidemic |
|
Home invasion |
Hurricane |
Financial collapse |
|
Tornado |
Earthquake |
Volcanic eruption |
|
Flooding |
Tsunami |
Nuclear disaster |
|
Landslide/rockfall |
Terrorism |
|
|
|
Chemical release |
|
|
|
Nuclear disaster |
|
|
|
Wildfire |
|
|
|
Winter storm |
|
|
|
Dam failure |
|
|
|
Volcanic eruption |
|
Although some of these potential threats apply to all families, others are regional or local in nature. To assess the various threats posed to each family, planners and their clients are advised to consult their local department of emergency management (or equivalent municipal preparedness division) website. These sites typically provide locally specific information such as evacuation zone maps, maps of emergency shelter locations, and other important geographically precise preparedness guidance.
Consideration of the range of threats posted in Table 1 intuitively leads to the conclusion that at least two separate sets of emergency plans are required for each family-one for threats that require evacuating the family from its place of residence and another for threats that may require retreating to the residence. A third, perhaps less intuitive, emergency plan is also required for addressing crises that occur when family members are separated from each other. The design of such plans may be expected to involve a confluence of considerations, such as housing type (house, condo, apartment, etc.), topographic and geographic location, number of family members, proximity to aid (neighbors, police, fire, first responders, etc.), and whether there are any special needs considerations (elderly or disabled family members, young children, and/or pets). Although each family's set of emergency plans is likely unique, Table 2 lists some common elements for each of the three types of plans.
Table 2 Common Elements of the Three Types of Family Emergency Plans
|
Home Evacuation Plan: Immediate Local Threat (fire, home invasion, etc.) |
Home Evacuation Plan: Impending External Threat (tsunami, tornado, hurricane, etc.) |
Plan for Handling Family Separation |
|
Have smoke/carbon monoxide detectors, fire extinguishers |
Keep emergency grab-and-go kits in each car (see Appendix) |
Have two-way radios in each vehicle and one for each child |
|
Have security system with 911 panic button in master bedroom keypad |
Establish an evacuation destination in advance |
Designate a distant relative or friend as point of contact |
|
Have fire escapes/emergency ladders from children’s bedrooms |
Plan an alternate destination in case of inaccessibility |
Use Red Cross “Safe and Well” registration |
|
Put flashlights in every room or at least every bedroom |
Pre-plan for elderly, disabled, pet evacuations |
Pre-plan for gathering young children, elderly, people with disabilities |
|
Identify two escape routes from every room |
Post family evacuation plan in common area |
Learn school or daycare evacuation plans |
|
Select a nearby place to gather following evacuation |
Review and update plan regularly |
Put emergency contact information in young children’s backpacks |
|
|
Store important family and financial information in secure online vault (driver’s licenses, passports, credit cards, family photos, planning docs, etc.) |
|
The emergency plans in Table 2 assist families in surviving and enduring potentially traumatic events over a short period. To the extent that immediate high-impact events force families out of their homes, such plans are intended cover the minutes, hours, or days it may take to get one's family to a safe and secure location. In contrast, disaster preparedness involves planning for prolonged catastrophes-perhaps as long as weeks or months-that typically involve hunkering down in one's home. For example, severe mid-winter ice storms in upstate New York in December 2008 left some remote areas without power and largely inaccessible for as long as two to three weeks. Hurricane Iniki in 1992 left many residents of the island of Kauai in Hawaii without power for months. Discussions of the threats posed by global pandemics, such as avian flu, have suggested that families might be quarantined for months and that the scale of such an outbreak could potentially be so widespread that it might lead to the cessation of municipal services (electricity, water, sewer, trash removal) and even emergency services (first responders, firefighters, police, hospitals, etc.).
Obviously, developing a plan to survive prolonged disasters is much different than preparing for shorter-term emergencies. At present, there is no standardized checklist of considerations or supplies, although the American Red Cross and FEMA offer checklists. See the Appendix for some of the items common to many preparedness checklists as well as certain less consistently referenced items that merit wider consideration. Most items are inexpensive and are easily obtainable online or at local pharmacies, supermarkets, or camping supply stores.
Conclusion
This paper is presented as a thought piece for ushering crisis management into financial planning, and is intended to provide individual planners enough information to assist them in evaluating the degree to which they wish to incorporate it into their practices. For some, it may be sufficient to simply raise client awareness by sharing this information, and for others it may serve as a starting point for building a deeper knowledge base. With respect to the latter, thoughtful study reveals that grassroots crisis management planning is still in its infancy and suffers from a lack of standardized terms and a dearth of empirically supported research. Even a cursory layperson's review of the leading informational websites such as those of the American Red Cross and FEMA reveals obvious advisory gaps and impractical solutions that suggest a need for greater critical thinking. For instance, the common guidance that families carry a three-day supply of water consisting of a gallon per person, per day is intuitively impractical (a family of five would need to carry 15 gallons of water). In this case, a more realistically implementable solution might be a lightweight portable water bottle with a filter (commonly available in camping supply stores) that would enable a family to easily and safely convert rain, lake, stream, or pool water into drinking water. Chlorine tablets are another simple, compact potability solution listed on some websites, and are arguably a best practice than storing and toting gallon jugs of water. Similarly, the common guidance of stockpiling batteries for flashlights and lanterns is arguably less sound than kinetic flashlights and/or solar-charged lighting. The recommendation to include matches or lighters in an emergency kit instead of a camping flint that would be functional even when wet is yet another example of the need for deeper thinking at the household-planning level. Indeed, FEMA itself is aware of its shortcomings, as the preparedness section of the agency's website solicits the general public to submit improved best practices.
In terms of the debate over whether such discussions even belong within the financial planner's bailiwick, this discussion has illustrated that certain aspects of crisis management are clearly and directly germane to the planning function. Although concepts such as emergency grab-and-go kits and disaster planning checklists are admittedly a bit removed from standard investment planning discourse, many other topics also fall squarely under the traditional financial planning umbrella but have little direct relevance to personal finance or investing. For instance, the common practice of educating clients regarding the importance of durable powers of attorney and advance health-care directives are basic elements of estate planning with little direct relevance to the client's financial position. With respect to the question of whether financial planners are even qualified to be dispensing crisis management advice, just as it is not, in most cases, the planner's role to give specific estate planning or tax planning guidance, the planner nonetheless serves a valuable role in raising client awareness of important issues and directing them to the professionals, organizations, or institutions with the requisite expertise. Aside from the obvious relationship strengthening that can come from such value-added services, if it is not financial planners' role to discuss such matters with their clients, then what other professionals are in a position to fill this void? In conclusion, it is hoped this discussion will stir debate within the financial planning community and generate critical thinking to advance the prototypical concepts presented here.
Appendix
Emergency Grab-and-Go Kit
- First-aid kit and guidebook
- Two kinetic flashlights (at least one with beacon flash)
- Fire-starting mechanism (matches, lighter, flint)
- Multi-function tool
- Water bottle with purification filter
- 6' x 8' plastic tarp (ground moisture barrier or temporary shelter covering)
- Compact emergency space blankets/rain ponchos (hypothermia protection)
- NP-95 surgical masks (one for each family member)
- Lightweight dry rations (one to three meals)
- Whistle and signal flares
- Hygiene items (toothbrushes, toothpaste, antibacterial soap, hand towel, etc.)
- Special medical items
- Duct tape, rope
- Pepper spray
Disaster-Preparedness Checklist
Short-Term Supplies Longer-Term Solutions Food and Water (three months’ worth) Hygiene Supplies (3 months’ worth) Portable generator Solar rechargeable batteries Portable water purification bottles Toilet Paper Batteries (multiples sizes) Solar rechargeable lighting Water purification system Toothpaste Matches, lighters, or camping flint Solar power generation array Chlorine tablets or bleach (unscented)* Feminine care products Gasoline, kerosene, propane Siphon Non-perishable canned goods Medical prescriptions Camping lanterns Kinetic flashlights Pastas, non-perishable dry goods Sealable garbage bags Outdoor solar camping shower Multi-vitamins Anti-bacterial dish soap Screened tent or cheesecloth (insects) Chlorine tablets or bleach (unscented)* Bath soap Insect repellent, citronella lanterns Pet food Disposable latex gloves NP-95 surgical masks Rubbing alcohol
* 16 drops ordinary chlorine bleach per gallon of drinking water. For disinfection/sanitation, mix one part chlorine for every nine parts water.
References
Biggs, Barton. 2008. Wealth, War, and Wisdom. Hoboken, NJ: John Wiley and Sons.
Redlener, Irwin. 2008. "Population Vulnerabilities, Preconditions, and the Consequences of Disasters." Social Research 75, no. 3 (Fall): 785-792.
Redlener, Irwin, Roy Grant, David Abramson, and David Johnson. 2008. "The 2008 American Preparedness Project: Why Parents May not Heed Evacuation Orders & What Emergency Planners, Families and Schools Need to Know." Annual survey of the American public by the National Center for Disaster Preparedness, Columbia University, Mailman School of Public Health and the Children's Health Fund.
Salahi, Lara. "Disaster Preparedness: Could the U.S. Hold Water?" ABC News, March 17, 2011.
Sutton, Jeannette, and Kathleen Tierney. 2006. "Disaster Preparedness: Concepts, Guidance, and Research." White paper prepared for the Fritz Institute Assessing Disaster Preparedness Conference, Sebastopol, California, November 3 and 4.
