New Evidence of America's Financial Fragility

Thursday, May 26, 2011 - 01:42 AM

piggy banks (flickr user voobie)

Unfortunately, Americans have always been terrible at saving: There have been lots of surveys and statistics that have proven this through the years. But a new survey provides shocking evidence that not only do many people not have any emergency savings on hand, they don’t even have a Plan B – no credit, no family to rely on, no belongings to pawn. They are the “financially fragile.”

A new paper, published by the National Bureau of Economic Research, asked respondents this question: “How confident are you that you could come up with $2,000 if an unexpected need arose within the next month?” Even with such open-ended wording, half of Americans surveyed said that they would probably not or certainly not be able to cope with a sudden $2,000 emergency.

The study’s authors – Annamaria Lusardi of the George Washington School of Business, Daniel J. Schneider of Princeton, and Peter Tufano of Harvard Business School – then asked a follow-up question to those who said they could get the funds. “If you were to face a $2,000 unexpected expense in the next month, how would you get the funds you need?” Respondents could choose up to three options from a list of 14, grouped into categories like “savings” and “sell my possessions.” The majority of people would rely on savings, but 34% would borrow from family or friends, 30% would rely on credit, and 11% would rely on alternative credit such as payday loans. (The percentages add up to more than 100 because respondents could choose more than one option.)

If we learned one thing from the recent recession and the era of sky-high unemployment, it’s that the standard advice is no joke: People need to build up enough savings so they can cover at least three months of expenses in case of an emergency. It’s always been discouraging to hear how few people actually do that. (Hey, you: Start today!) But it’s downright scary to think that not only are Americans not able to save enough cash to cover unexpected car trouble or a sudden medical expense – they don’t even have a safety net to catch them if they fall. 

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Comments [1]

christine freitas from Randolph, MA

We are one of the households that make over 100,000 a year, but would find it difficult to come up with 2000 in an emergency. Like so many in our town my husband is a small business owner dependent on a healthy housing market and I work in a school. My income has remained the same, but his didn't cover the cost of running the business. So for two years we have used all our means to cover the cost of the house and business - plus, those expenses have gone up (gas, food, materials for the business). We thought that the competitors would have closed up shop by now, but they must have wives that work in schools or hospitals too that are providing a steady income, enough to get by.

May. 27 2011 05:52 AM

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