Financial Fragility

Would you be able to make ends meet with $350,000 a year? Most would immediately jump at the opportunity for that type of cash flow, but a story about a hypothetical couple "just getting by" with that income has sparked conversations about perceived wealth and accessibility to wealth that most Americans will never experience. The "Report on the Economic Well-Being of U.S. Households" from the Federal Reserve indicates that most Americans are "financially fragile" and not prepared for financial emergencies should they arise. The report points to the widespread struggle of covering an unexpected expense of $400. We analyzed the Fed's survey data to determine which populations might be more at risk of financial fragility, how Americans feel toward their financial status, and how many would be in major trouble with an emergency. Continue reading to learn more.

Would you be able to make ends meet with $350,000 a year? Most would immediately jump at the opportunity for that type of cash flow, but a story about a hypothetical couple "just getting by" with that income has sparked conversations about perceived wealth and accessibility to wealth that most Americans will never experience.

The "Report on the Economic Well-Being of U.S. Households" from the Federal Reserve indicates that most Americans are "financially fragile" and not prepared for financial emergencies should they arise. The report points to the widespread struggle of covering an unexpected expense of $400.

We analyzed the Fed's survey data to determine which populations might be more at risk of financial fragility, how Americans feel toward their financial status, and how many would be in major trouble with an emergency. Continue reading to learn more.

Just Getting By

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Financial hardships can impact anyone: 18% of respondents admitted to just being able to make ends meet, while 7% found it difficult to get by. While the report indicated equal percentages of men and women just getting by, the issue can be compounded based on the cost of living in a particular city, state, region, or even field of employment.

Currently, the average American is feeling slightly more confident about their finances: Compared to a year ago, 31% of people said they are doing better, while 13% said they are doing worse. Additionally, 37% of survey participants living comfortably said they are better off. Wealth stimulates wealth, enabling people with money to expand their income with multiple revenue streams and investment opportunities, establishing safety mechanisms in case of job change, loss, or other negative financial impacts.

However, for people currently reporting "just getting by," 56% were in a similar economic situation as a year ago, while 55% "finding it difficult to get by" were worse off now than a year ago. Despite low unemployment and improvements in financial stability nationwide, less than 3 in 10 Americans are considered "financially healthy."

Generational Comparisons of Financial Fragility

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Americans are far more satisfied and certain about their current economic conditions than their parents were at the same age: 56% of survey participants said they are better off than their parents were at the same age.

Additionally, 62% of people doing OK financially said they are better off than their parents were at their age. These Americans were likely taught about finances while they were growing up – an advantage over those who threaten their own economic security and were never taught that critical information.

Financial Struggles Meet Americans Head-On

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Even though the current U.S. economic climate is quite strong, Americans still struggle to afford their standard of living, and many are not prepared for an unforeseen emergency. Seventeen percent of Americans said they couldn't pay some bills this month. And the biggest culprit was the credit card bill, which 7% of the survey pool – including 4% of those living comfortably – pointed to as a major concern.

Possibly, as a result of these trends, the average American has no savings to rely on. In fact, a rainy-day fund was out of reach for many of the people in the Fed's report, with 17% of those just getting by and 8% struggling financially finding it difficult to devote funds for future emergencies. Compared to 64% of financially healthy respondents who contributed to an emergency fund, less financially stable individuals are vulnerable to dramatic shifts in income.

For many, short-term financial woes take precedence over things like long-term savings. After all, if it's hard enough to cover immediate bills, how can anyone expect them to think about savings? In fact, half of women and 47% of men in the report didn't have any type of three-month plan in the case of illness, job loss, economic downturn, or other emergencies.

Faced With Emergencies, How Do Most People Fare?

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Many people feel ill-equipped to handle an emergency. Only 45% of survey participants had enough money in the bank to cover a $400 emergency, while 12% wouldn't be able to afford the cost whatsoever. Having money in a savings or checking account demands some type of stable income. Some issues that can affect economic stability include caretaking for aging relatives, having two-plus jobs, financial instability, and a lack of flexibility from employers.

Lower-income earners may especially struggle to find resources for emergencies. And a lack of access to financial institutions may be partially to blame, an issue that disproportionately affects minorities who are "unbanked," meaning they currently do not have a bank account. These Americans, as a result, may turn to alternative money sourcing. Respondents in poor financial straits resorted to borrowing from friends or family (23%) and selling personal items (15%), while others turned to cash advances or payday loans. Those who take out payday loans, however, are particularly susceptible to predatory practices.

Protecting Your Financial Security

Today, many Americans are making economic strides. The subreddit r/financialindependence represents a community of nearly 660,000 subscribers who are devoted to the FIRE movement. This group seeks financial independence (FI) to retire early (RE), which is supported by a constant stream of discussions led by and for people seeking financial security.

Programs, from large-scale endeavors to smaller community-focused programs and student-led initiatives, are popping up nationwide, each with its own way to educate people on financial literacy while encouraging them to save with a limited budget. No matter the resource, pivoting your focus to your finances is a worthy first step.

Your next step should be visiting OnlineLoans.com, which can help solve your financial concerns with support geared toward your specific needs, whether you have poor credit or are seeking a top-tier lender. With us, you can find qualified and protected loans that will help you gain control of your financial future.

Methodology

We used the Federal Reserve's Survey of Household Economics and Decisionmaking (SHED). The data are for 2018 and are weighted using the variable "weight2b." This makes the data sample reflective of the adult U.S. population. To read more on how the survey is conducted and the questions used in the full study, please see the survey description here.

Fair Use Statement

Money woes plague many of us, so discuss these findings with the people you know. You'd probably be surprised as to how many of your loved ones are unprepared for a small financial dent. Be sure to cite us when mentioning our findings, and share these data for noncommercial use only.

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