How could climate change affect your money?

A new report from the U.S. Department of the Treasury found that alongside risks to health and the physical environment, climate change imposes “substantial financial costs” on communities across the U.S. 

The total cost of weather and climate disasters from 2018 to 2022 exceeded $617 billion, with a price tag of more than $176 billion in 2022 alone. 

While 13% of Americans reported economic hardship from natural disasters and severe weather (including flooding, hurricanes, wildfires, and extreme temperatures), climate change impacts are only expected to worsen, putting more communities and households at risk of financial strain. 

Here are the most significant financial risks of climate change, according to the Treasury’s report — and how you can start shoring up your finances now.

Climate events like flooding and wildfires can damage businesses and infrastructure, pushing employers to lay off workers. Similarly, hazards like wildfires and heat waves can create unsafe working conditions, triggering reduced hours, layoffs, and job loss. Of course, employment disruptions can lead to a loss of income and benefits, including employer-provided health insurance, retirement plans, paid leave, and employee assistance programs. 

Industries like agriculture, construction, manufacturing, and tourism may be especially vulnerable to income interruptions. And prolonged exposure to climate hazards can impair workers’ physical and cognitive abilities, “which can lower their overall productivity and, consequently, result in a decline in their earnings,” according to the Treasury.

A recent study by CoreLogic found that one in 10 homes in the U.S. were impacted by hurricanes, wildfires, winter storms, or severe weather in 2021, causing nearly $57 billion in property damage. When families lack the resources to make timely repairs, additional long-term property damage could result in higher repair costs, declining property values, or even property abandonment — all of which can reduce household assets and make it harder to build wealth. 

Climate hazards can strain household budgets when supply chain disruptions increase the cost of consumer goods. For example, droughts, floods, and extreme heat can reduce crop yields, leading to shortages and higher prices at the checkout. Higher consumer prices disproportionately impact lower-income families and can lead to (or exacerbate) food insecurity in these households.

Families may face higher energy costs when climate events interrupt power generation, disrupt fuel production, or damage energy infrastructure. Climate conditions can also increase the energy families use, leading to higher utility bills. For example, households use more air conditioning during heat waves (think Phoenix’s 133 days of 100+ temperatures this year), driving up utility costs and straining household budgets. 

Natural disasters and climate conditions can result in injuries — including those requiring medical attention — increasing healthcare costs for impacted households. For example, Hurricane Sandy caused an estimated $3.1 billion (2018 dollars) in health-related expenses. A separate report from the Center for American Progress estimates that extreme heat in the U.S. results in $1 billion in extra health-related costs every summer. 

Climate hazards can also have far-reaching effects on public health, such as when the 2023 wildfires in Canada caused poor air quality across the U.S. Older adults and people with preexisting conditions may be especially susceptible to adverse health consequences related to climate hazards. 

Climate hazards can make accessing funds difficult. For example, you might need cash to pay for things if a natural disaster shuts down electrical systems and cell service. Families that rely primarily on online or mobile banking services (as a growing number of households do) might not have cash on hand, creating a financial strain. At the same time, families that rely on in-person banking could be negatively affected if their local bank is damaged, inaccessible, or destroyed. 

Families with homeowners insurance have an easier time recovering from natural disasters, but it’s becoming increasingly difficult for insurance providers to predict losses, set premiums, and underwrite policies. These challenges could lead to higher premiums, reduced coverage, or dropped policies in certain areas, increasing risk — and the likelihood of insurance gaps (economic losses that insurance doesn’t cover) — for those households. 

A U.S. Census Bureau survey found that over a third of Americans impacted by disasters in the last year used loans or credit cards to meet their spending needs. Households under financial strain are more likely to pay less than is owed or skip payments altogether, leading to lower credit scores and, consequently, higher borrowing costs. As families struggle to repay debt in areas struck by disasters, financial institutions may restrict access to credit to limit their risk.  

Policymakers play the most prominent role in supporting the financial well-being of families in disaster and hazard-prone areas. However, individuals can prepare for the costs of climate change by building an emergency fund and taking steps to achieve what the Treasury report calls “financial resilience.” Here are seven recommendations for doing so (see Appendix 1 in the report for details):

2. Create an emergency plan. Numerous resources, such as Ready.gov and the FEMA App, can help you prepare for and respond to climate hazards. 

4. Review your insurance coverage. Ensure you have adequate property, auto, flood, and fire insurance. If not, speak with your insurance agent to update your policy. 

5. Use tax credits to prepare your home for extreme weather. The Inflation Reduction Act includes tax credits and deductions that you can use to make energy-efficient improvements to your home or property. 

7. Watch out for fraud and scams. The FTC and CFPB offer advice on how to recognize and avoid common scams after a disaster.  

Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.

This article was originally published on SFGate.com and reviewed by Lauren Williamson, who serves as Financial and Home Services Editor for the Hearst E-Commerce team. Email her at lauren.williamson@hearst.com.