At Least 46.5% Of Americans Are "Financially Fragile"

Everybody knows most Americans are behind the eight ball financially. Simply put, they have little extra cash or savings. Once in a while, some economists do a survey to find out just how little money most Americans actually have. Others like me report the terrifying results, a few people shake their heads and frown, and then life goes on as before. This is one of those kind of stories, similar to January's post  29% Of Americans Say It's Difficult To Afford Food.

The Wall Street Journal's Phil Izzo reports that Nearly Half of Americans Are ‘Financially Fragile’.

Nearly half of Americans say that they definitely or probably couldn’t come up with $2,000 in 30 days, according to new research, raising concerns about the financial fragility of many households.

In a paper published by the National Bureau of Economic Research, Annamaria Lusardi of the George Washington School of Business, Daniel J. Schneider of Princeton University and Peter Tufano of Harvard Business School used data from the 2009 TNS Global Economic Crisis survey to document widespread financial weakness in the U.S. and other countries.

The survey asked a simple question, “If you were to face a $2,000 unexpected expense in the next month, how would you get the funds you need?”

In the U.S., 24.9% of respondents reported being certainly able, 25.1% probably able, 22.2% probably unable and 27.9% certainly unable. The $2,000 figure “reflects the order of magnitude of the cost of an unanticipated major car repair, a large copayment on a medical expense, legal expenses, or a home repair,” the authors write. On a more concrete basis, the authors cite $2,000 as the cost of an auto transmission replacement and research that reported low-income families claim to need about $1500 in savings for emergencies.

Now, the last time I checked, 2 + 2 still equals 4, and following the stringent rules of mathematics, 22.2% (probably unable) + 27.9% (certainly unable) = 50.1%. Thus at least half of Americans probably can not come up with $2000 in a pinch. And let's face it, that's not a lot of money in today's happy world. As Izzo notes, an unexpected major car repair or medical co-payment (assuming you've got insurance) could easily breach the $2000 mark.

But what about this probably able group? Just as I am proficient in arithmetic, English is my native tongue, thus I am able to write these posts, conduct conversations in that language, and so on. The phrase probably able can also be taken to mean maybe not, as in there is some possibility those in this group could not come up with $2000 in an emergency. And this next statement from Izzo seems to back that reasonable interpretation up.

Financial fragility isn’t limited to low-income groups. “Households with socioeconomic markers of vulnerability (income, wealth, wealth losses, education, women, families with children) are more likely to be financially fragile, and substantially more so,” the authors write.

“The more surprising finding is that a material fraction of seemingly ‘middle class’ Americans also judge themselves to be financially fragile, reflecting either a substantially weaker financial position than one would expect, or a very high level of anxiety or pessimism. Both are important in terms of behavior and for public policy.”

Following the now established rules of arithmetic, 50.1% + 25.1% (probably able) = 75.2%, meaning that 3 out of 4 Americans are not certainly able to come up with $2000 if they need it.

Unfortunately, I am unable to look at the original study to gain more insight into what "coping methods" people would use unless I pay a $5 fee, which I refuse to do. How would people try to raise the money?

Lusardi, Schneider and Tufano also looked at the ways in which people coped with an unexpected expense. Most would use multiple methods ranging from dipping into savings, asking for help from family and friends, using loans or credits cards, taking out payday loans or selling possessions.

“Taken together with those who would pawn their possessions, sell their home, or take out a payday loan, 25.7% of respondents who were asked about coping methods (equal to 18.6% of all respondents) would come up with the funds for an emergency by resorting to what might be seen as extreme measures,” the authors write. “Along with the 27.9% of respondents who report that they could certainly not cope with an emergency, this suggests that approximately 46.5% of all respondents are living very close to the financial edge.”

According to the economists who carried out the survey, these 46.5% are the financially fragile, hence Phil Izzo's headline. In other words, "financially fragile" is a euphemism for living on the edge of total financial disaster (homelessness, soup kitchens, and so on). Or to use a colloquialism, this felicitous phrase describes those who are only a medical bill (or a car repair) away from being up shit creek without a paddle.

However you interpret the survey results, it is crystal clear that most Americans, including many of those in the Middle Class, do not have sufficient cash on hand to cope with an emergency. As I reported last year, 77% of them are living paycheck to paycheck (or government transfer payment to government transfer payment).

Once upon a time, this was the wealthiest, greatest country on Earth. It is still the wealthiest, but most people don't get to share in it.

Bonus Video — Uncle Jay explains how euphemisms work.

 

Comments

[Mike Brehm]

Dave -

With an alternate .gov address I was able to download the PDF for free. If you'd like a copy, email me at my comment submission address and I will gladly dispatch it to you forthwith. Or if you have access to a .gov account it may possibly let you do the same.

I haven't had time to read the study, but I appreciate your analysis and gentle reminder that the conclusions are being presented in a "glass half full" kind of way for the masses. The reality is that 3/4 of Americans are $2000 away from being virtually destitute on a regular basis.