Nearly Half of Americans Are ‘Financially Fragile’

Wall Street Journal Blogs ^ | May 25, 2011 | Phil Izzo

[rightwingintelligentsia]

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.

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.”

[SWAMPSNIPER]

Time to bring out the pitchforks!

Government employees and career welfare dependents aren't feeling the pain.

Those of us who have worked all our lives are watching the results of our labor sliding away.

We are ignored because it is relatively safe to ignore us.

[rightwingintelligentsia]

It is a little unclear, but the article seems to say that if you have to pawn your possessions or take out a payday loan to come up with the $2K, rather than dip into savings or ask friends and family, then you’re classified among the “fragile.”

[Sooth2222]

Meanwhile, Lusardi, Schneider and Tufano also looked at how different countries compare. They consulted with local partners to set the number used in local currency at a comparable level. “Perceived capacity to cope with an emergency is lowest in the U.S., U.K. and Germany, all countries in which 50% of households or more would probably or certainly be unable to come up with the emergency funds,” the authors wrote. “France and Portugal occupy an intermediate position; 46% of respondents in Portugal would certainly or probably be unable to come up with the funds as would 37% of those in France. The highest levels of coping capacity are found in Canada (28% certainly or probably unable), Netherlands (27.9%), and Italy (20%).”

I'd find it shocking if Italy turns out to be the paragon of G7 personal financial prudence. I wonder about the survey methodology.

[Arrowhead1952]

I expect having to spend several thousand dollars on the daughter’s wedding if things work out. Shouldn’t be a problem for us.

[2banana]

“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.

And yet - they seem to be able to come up with the money for their iPhone and cigarettes...

[ichabod1]

I could handle a 2K hit. I could not handle TWO 2K hits.

[Uncle Miltie]

Unsurprisingly, 47% is the exact number of Americans paid by the Federal Government to be dependent upon government checks.

You get what you pay for: Dependency.

[Jane Long]

Oh, no worries! Obie & Co will just take from the savers to give to the takers, no? Redistribute the wealth.

[Anitius Severinus Boethius]

http://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=4488

MORE PEOPLE HAVE NO SAVINGS AT ALL: An increased percentage of workers report they have virtually no savings and investments. Among RCS workers providing this type of information, 27 percent say they have less than $1,000 in savings (up from 20 percent in 2009). In total, more than half of workers (54 percent) report that the total value of their household’s savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000

[Still Thinking]

ANYONE could come up with 2K in 30 days by delivering pizzas or selling some of their extra “stuff” on e-bay.

Seriously? You can net 2K/month delivering pizzas part-time? I may have to look into that.

[Little Ray]

And that’s just the ones who aren’t on the dole...

[SVTCobra03]

“I expect having to spend several thousand dollars on the daughter’s wedding if things work out. Shouldn’t be a problem for us.”

Don’t most weddings cost at least $10k?

[WOBBLY BOB]

I'll give you 20 bucks for it.

[Vermont Lt]

I work around the collegiate sports schedule. Therefore, I am done working (at least hard) for the next six weeks.

Every year at this time, I make a pass through the house and cull out crap that I havent used (either in my profession or in my leisure time.)

In the last week and half, I have cleared (after expenses) $600 on eBay. And this is not BIG stuff.

So, if push came to shove, I could unload $2k in a month.

But, then again, if I don’t have about $8k in the bank by the end of May, I will be selling blood to make the September mortgage payment.

[Still Thinking]

Did they have a choice for “sure, I’ll rob Peter to pay Paul”?

Your comment relative to this thread reminded me of Jim Carrey and Tea Leoni's career as convenience store robbers in Fun with Dick and Jane.

[Alex Murphy]

I have the advantage of being broke.

I have the advantage of a truck and a walletful of cash, whenever you decide to have that garage sale.

[Bitsy]

Well, Obqamas goal is half way met.

[Arrowhead1952]

More like $20 - 25 K these days.

[Freedom_Is_Not_Free]

I’m not surprised at all by these results. Call it insight into the 50% of Americans that pay no Federal income taxes.

Also, being financially irresponsible is not confined to just that lower 50%. A lot of people live month to month with no financial planning and no savings. I’ve known people who have $25,000 - $30,000 on credit cards and spend every penny of their paycheck. They pay their expenses first and then blow ALL of the rest. If something comes up like auto repair or an emergency, the cost goes on the credit card. They pay whatever they want to on the cards with no real plan or expectation of paying off the balance. A lot of their money goes to credit card interest.

Just insane. I am talking career professionals here, not burger flippers. They are financially oblivious.

[stuartcr]

Maybe Paul should have a talk with Pete.