Thursday, April 10, 2014

America's Vulnerable Households

The 2012 National Financial Capability Study by FINRA provides us with an interesting snapshot of the state of household finances in the United States.  The study was undertaken based on data from a nationwide online survey of over 25,000 American adults and can be broken down into both state level.  I'm going to jump right into the questions asked and the data supplied by respondents on a national basis.  Please note that all of the responses do not add up to 100 percent because I have chosen to ignore the small sample of respondents that "preferred not to say".

1.) Over the past year, would you say your household's spending was less than, more than or about equal to your household's income?


2.) In a typical month, how difficult is it for you to cover your expenses and pay all of your bills?


3.) Have you set aside emergency or rainy day funds that would cover your expenses for 3 months in case of sickness, job loss, economic downturn or other emergencies?


4.) How confident are you that you could come up with $2000 if an unexpected need arose within the next month?


5.) Have you ever figured out how much you need to save for retirement?


6.) Are you setting aside any money for your children's college education?


I found it interesting that nearly one in six American households are spending more than they are earning and that nearly six in ten are having some or great difficulty paying their monthly bills.  It is also interesting to see that nearly six in ten households have not saved the bare minimum of three months worth of salary as a buffer to cover an emergency (i.e. a sudden job loss) and that four in ten feel that they would not be able to come up with $2000 if there was an urgent need.  It is fascinating to see that very substantial numbers of Americans have done very little planning for their retirement or saving for college education for their children but not terribly surprising given the number of households that are living hand-to-mouth.  


When one looks at the numbers, the financial vulnerability of America's households is frightening and perhaps goes a long way to explaining why the consumer-driven United States economy is not growing at anything approaching historical levels.  Given that the economy is five years into a "recovery", the situation for millions of households could become dire if the economy experiences a downturn as interest rates rise to historical norms and over-indebted households are forced to face their own personal day of debt reckoning.

10 comments:

  1. My advice on this topic is first take an inventory of your life and your finances.(find things you can live without, so you can free up some money) Get rid of the credit cards. Take all of your money out of the bank. Deposit your money with a local credit union. Pay off your credit card debt. Once you are free of credit card debt keep it that way. If something comes up and you absolutely need money you can get personal loans of various amounts from the local credit union. This process of getting money insures you will only undertake it when you need to (ie not to buy a TV or DVD player) Bring your car to a trusted local repair shop avoid chain places if possible, some chains will not let you pay monthly to get your car fixed. Try to keep the money you spend as local as possible. It may cost a little more but try to avoid big stores like walmart when possible (i know its not always possible but when 4 of the 10 richest people in the US are the Waltons they have enough money let your money go to someone local)

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  2. While they will tell you otherwise the average person only begins to care about the economy when they are directly effected or financially slapped in the face. With a lack of investment options many of these people are left unable to react if and when a trend dramatically shifts.
    This leaves the bulk of society extremely vulnerably when a shift does occur. We can add to this fact that we are often lulled into being far to complacent as to the real economy risk that surrounds us. More on this subject below.
    http://brucewilds.blogspot.com/2014/03/few-people-really-understand-economy.html

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