It's Not What You May Think

Credit Donkey carried out a survey of Americans in September, finding that nearly half have no emergency savings.

Close to half have no cash savings and are living on the edge of financial disaster, according to a recent CreditDonkey.com survey. While 59% of respondents reported having more than $500 in savings, the other 41% do not have a cash safety net.

Well, no surprise there, although there is a definitely possibility that many of these Americans do indeed have over $500 available in case of an emergency—they have 573 dollars and 49 cents. Of course, if you lose your job, or your car breaks down in a serious way, or you have a medical emergency, and you don't have insurance or you've got a high deductible, you are still screwed. $573.49 doesn't go quite as far as it used to

But Credit Donkey emphasizes that it's not what you may think.

It’s not what you may think: this 41% is made up not only of people living at or below the poverty line. They are also dual-income earners with nice homes, nice cars, nice toys, a 401K retirement savings plan, big mortgages. and big credit card bills. But if they ever get into a bind and need some quick cash — say, because of a car breakdown or an unexpected doctor visit — they don’t have it.

While this group may be rich in home equity and other investments, their assets are not liquid. In other words, none of those items converts easily into cash in an emergency. People in this situation even have their own name — the "liquid asset poor" — a term coined by the Washington, D.C.-based advocacy group Corporation for Enterprise Development.

With no cash reserves, they are just one paycheck away from financial ruin should an emergency or a job loss happen because they cannot easily access cash on a moment’s notice.

Sadly, the CreditDonkey.com survey also found that more than half of respondents (54%) said they may be stuck in this situation for the foreseeable future. They have not set up an emergency cash savings strategy.

That was a new one for me — the "liquid asset" poor. 54% of respondents don't even have a strategy for saving some cash, although we don't know how many have spent every dime they make to finance nice homes, nice cars, nice toys, a 401K retirement savings plan, big mortgages. and big credit card bills. It would have been nice if respondents had been classified according to income.

No doubt many poll respondents could not possibly have a strategy for saving money because they're spending everything they have to make essential ends meet (food, gas, rent/mortgage, utilities). When I last checked, approximately 146 million Americans were living within 200% of the poverty line.

Nevertheless, we must acknowledge the existence of the "liquid asset" poor. Some unhappy thoughts came to mind as I considered them.

• If you live in a society in which you have been called a "consumer" in the media and by economists for as long as you can remember, you might conclude (albeit unconsciously) that I Consume, Therefore I Am. That's not quite what René Descartes had in mind, although it is still hard to determine what exactly René did have in mind. If one's existence follows from being a subject ("I") who thinks—cogito ergo sum—and many lives are lived devoid of thought, as with these "liquid asset" poor, we are forced to conclude that these people do not exist. But these "consumers" demonstrably do exist—somebody is buying all that Stuff. Therefore we definitely have a philosophical riddle to solve

• If these "uber-consumers" do indeed exist, and I think we can agree they do, some of them may not exist for long if an unforeseen emergency presents itself. Such an emergency would necessarily be unforeseen because, as just noted, such people apparently live in the absence of something we might call actual thought.


• The "liquid asset" poor are doing precisely what Ben Bernanke and Paul Krugman want them to do: they spend all their income and more—they have big credit card bills—on Stuff. This is the essence of neo-Keynesian economics as it has come down to us in the early 21st century. I hope we can agree that this "economic theory" has been a most unhappy development.

If I can be serious for a moment—on second thought, when I am not serious? —there is always a trade-off in life between risk and security. The "economic theory" which has governed our lives, and which economists like Ben Bernanke and Paul Krugman still push, like crack dealers to the blind, has tilted very far toward the risk side of life. Interest earnings on cash savings is basically zero.

We are entitled to conclude that neo-Keynesian "economic theory" gives us an unbalanced view of life, a stance which is potentially very self-destructive, because of its extraordinary slant toward risk. You might well ask when did skydiving become a model for living?

Needless to say, any sense of security ordinary (i.e. non-wealthy) Americans might have in 2012 is illusory. One might think that the events of 2008 and subsequent developments would have tipped off Americans that the rules of consumption they had lived by no longer apply. Sadly, as Credit Donkey says, the "liquid asset" poor have not gotten the message.

Comments

[James]

Those "asset poor" are largely the so called middle class. They are the ones just above the poverty line that can (supposedly) afford the house and cars, etc. Often using large amounts of credit to maintain that lifestyle. They have no real wealth (as it is all debt leveraged) and so are barely hanging on to the ladder.

This is why it is so important to look at wealth distribution, not just income inequality. As of 2010, the top 1% of households (the upper class) owned 35.4% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 53.5%, which means that just 20% of the people owned a remarkable 89%, leaving only 11% of the wealth for the bottom 80% (wage and salary workers). In terms of financial wealth (total net worth minus the value of one's home), the top 1% of households had an even greater share: 42.1%

11% of wealth spread amongst 80% of the population is a joke. I would guess by 2012, it is an even greater disparity with the bottom 50% owning some miniscule fraction of wealth. For most Americans, their home is the only significant source of wealth that they own (if any). But guess how that has been going. The point is that there is no security for at least 50% and probably 80% of the population- they effectively own nothing.

This is intentional, of course. Those at the top are largely the products of largesse and inheritance and have no intention of sharing. It is only the fools at the bottom who do not understand the situation and think they have a chance to "make it". The reality is that they are kept expendable.

[Oliver]

Life is very serious Dave. I am spending most of my days considering WTF is left to say to people 10 and 20 years younger than me about what is looming. (People our age - I mean the ones who do think rather than stagnate into brain death watching TV - are worn down enough to roll with the punches.)

But some days, I just laugh. Uproariously. And today is one of dem days. Why? Because of your priceless passage:

I Consume, Therefore I Am. That's not quite what René Descartes had in mind, although it is still hard to determine what exactly René did have in mind. If one's existence necessarily depends on thinking—cogito ergo sum—and many lives are lived devoid of thought, as with these "liquid asset" poor, we are forced to conclude that these people do not exist.

This piece of witty sagacity would have greatly enlivened the red-faced arguments I had with my philosophy professor way back in those dinosaur days when governments handed free money to students looking to obtain a higher education.

For your gift today I am forever in your debt. :-)

[Dave Cohen]

@Oliver --

Yes, as I was thinking that over, I made a few changes in the text for clarity. I was trying to get to the bottom of this common phrase --

The lights are on, but there's nobody home

Of course, cogito ergo sum is clearly absurd because existence is obviously independent of thinking. One could just have easily said I masturbate, therefore I am. ;-)

-- Dave

[NoHype]

I'd submit to you that people are a little smarter than we may assume.

Let's say everyone in the country suddenly decided to save $5,000 each and put it ... where? In a bank? All that money sitting around would be too juicy of a target for the people who own those banks to simply ignore. After all -- it's a liability to them, not an asset.

Under a mattress? OK. Who's in charge of the printing press? Dollar bills under mattresses are just IOU's from the government. If the government is wholly-owned by entrenched wealthy families, would they not hit the "print" button in a New York second? (after, safely converting their assets into something else, of course).

The average bear my not understand all the intricacies, but he knows how screwed he is. The "middle class" was just playing the game as it was structured 10 years ago, then the rules suddenly changed. They know it.

The only question in my mind is when do they defaulting en masse? It hasn't (apparently) happened yet, and I'm pretty amazed at that. Maybe they'll hang on forever. Who knows.

[Oliver]

You've done it again Dave. Stop before I need to change my underpants - again. :-)

[JohnWDB]

I wasn't a philosophy major, but for the argument "I think therefore I am", isn't the contrapositive "I am not, therefore I think not"? If something thinks, then it is. So if something isn't, it doesn't think. If the argument is true, the contrapositive is also true.

It is the inverse of Decartes' argument that would be "If something doesn't think, then it isn't". The inverse of an argument is likely to be false, as we clearly see evidenced in the thoughtless consuming masses.

Not that this changes anything with regards to today's excellent post, Dave. And I thank you for abiding my mental masturbation, which I take as evidence of my own existence. The masses do not think, but I also think NoHype makes a fair point. I don't completely agree with him that their lack of frugality is evidence they thoughtfully conclude they're screwed. However, the fact that they are screwed means that their lack of frugality just so happens to optimal behavior. They just arrived at it accidentally rather than thoughtfully.

[adam]

Making fun of stupid people makes everyone feel better, but in reality, there are a lot of stupid or average people... They are never going to think too deeply. That doesn't mean they should be treated badly.

My mother was a social worker back in the 1970's for a short while. She said most of the really poor people stuck on welfare were pretty dumb. The smart ones cheated like hell and got off welfare after a bit. It frustrated her because she realized that there is only so much we can expect of the stupid, so subjecting them to poverty was painful to watch.

What does it say that our society is purposely leading these people down the road to ruin, or allowing them to fall into poverty?

[Oliver]

Adam - good point. It's all about who we mean when we discuss The Stupid. My definition of stupid isn't intellectually impaired people, i.e. those not particularly switched on through no fault of their own. The truly stupid are those who know better, but still act irrationally - including utterly selfishly with no care for the consequences. This includes the cunning bastards at the top table who are currently ripping us all off and making hay while the biosphere crumbles into an assortment of remnant amino acids.

[JohnWDB]

Adam, the half of Americans with less than 500 bucks in the bank aren't all IQ < 85, I assure you...it's statistically impossible.

Your ideology seems to be that if someone is impoverished it is because either a) society purposely did it to him, or b) because society ruthlessly allowed him to fall into poverty. In other words, you might espouse materialism or determinism, and you'd deny personal responsibility wholesale. While it is certainly true that many in poverty lack the resources to get out in this country, it is impossible that every person in poverty had it done to him in spite of his best efforts.

A lot of people are in poverty now, not because of low IQ, but because they bought into the lie of consumerism. Is that their fault or is it the fault of the advertisers? Isn't this the McDonald's vs obesity argument warmed over? What I would suggest in all these questions is that you play devil's advocate once in a while. The alternative is taking one side of a false dichotomy, and that's usually accompanied by misdirected outrage.

[James]

Fault is largely irrelevant, though. What is, is. We have a society that has failed for the majority of its members for the benefit of very few. The fact that this situation is only getting more pronounced shows that for whatever reason, it is also self reinforcing. Blame is for those who want to feel better, not necessarily understand reality. Causation is a more relevant, but often far more complex, concept.

On the upside, there is plenty to be outraged about.

On the subject of human intelligence, most people are not introspective nor do the analyze beyond the immediate. They are creatures of habit and tend avoid difficulty, including critical thinking, if possible. This is not stupidity, it is a byproduct of survival and societal development. It occurs at all levels- the rich are no smarter than the poor, though they may be more educated. Being at the top of the help is overwhelmingly a fluke of birth rather than any reflection of ability, especially in stratified societies where social mobility is restricted. Those at the top wield greater power and so rig the game, so to speak, to avoid risk to their interests. You see this in various incarnations throughout the society- crime bosses/gang lords at the bottom, guilds, unions, etc. in the middle, and oligarchs/nobility/industry captains at the top. Nothing overly complicated or clever, just monkies hoarding their bananas.