Yet another scary study on how poor Americans are...

[LARS]

According to a study performed by the National Bureau of Econ. Research nearly 50% of Americans could not definitely/probably raise $2,000 in one month.

I guess with Federal transfer payments at all time highs this makes sense, but it still makes me very suspect on the strength of the economy.


Nearly Half of Americans Are ‘Financially Fragile’ - Real Time Economics - WSJ

 

[traineeinvestor]

That makes for depressing reading - America is one of the richest countries in the world (on a per capita basis) which makes it really really hard to understand why such a large proportion of the population would have difficulty in putting their hands on a sum of money which represent on a fraction of the average income. I can understand that some people would find it difficult, but nearly half?

 

[Telly]

That makes for depressing reading - America is one of the richest countries in the world (on a per capita basis) which makes it really really hard to understand why such a large proportion of the population would have difficulty in putting their hands on a sum of money which represent on a fraction of the average income. I can understand that some people would find it difficult, but nearly half?

America, land of affluence. It should be our national motto.
Consumption rises to meet income. I first noted this when I was just out of high school working in a grubby factory, long long ago.

It's all about how many dollars PER MONTH. The actual end-cost or full cost is unimportant. Buy that new car, new gizmo, new wide-screen TV, buy buy buy, eat eat eat. Clothes clothes! Vacations wherever! Big house? SURE we can! Furniture! We deserve it! WE can afford it, it's only xx per month. Easy credit, minimum payments! We CAN do it! We WILL do it!
But suddenly $2000 extra in a MONTH? Are you crazy, man? where'd we get THAT from?

 

[GregLee]

According to a study performed by the National Bureau of Econ. Research nearly 50% of Americans could not definitely/probably raise $2,000 in one month.

It's not entirely clear to me whether people were being asked whether they could come up with $2,000 cash or meet an expense of $2,000. It's not the same. During my working life, I would usually have had trouble coming up with $2,000 cash, but why would I need cash, anyway? Most $2,000 expenses I would have paid with a credit card, and it wouldn't have taken me a month. I would have just paid it right away, but it might have taken a while to pay down the credit card debt, of course. A month, 6 months, ... who knows? I never kept exact track of such things.

So, I just wonder whether the researchers understand how family financing works, these days.

 

[traineeinvestor]

It's not entirely clear to me whether people were being asked whether they could come up with $2,000 cash or meet an expense of $2,000. It's not the same. During my working life, I would usually have had trouble coming up with $2,000 cash, but why would I need cash, anyway? Most $2,000 expenses I would have paid with a credit card, and it wouldn't have taken me a month. I would have just paid it right away, but it might have taken a while to pay down the credit card debt, of course. A month, 6 months, ... who knows? I never kept exact track of such things.

So, I just wonder whether the researchers understand how family financing works, these days.

Good question.

Based on the phrasing of the question “If you were to face a $2,000 unexpected expense in the next month, how would you get the funds you need?” and the examples given, I assumed that it was to meet an expense, not to raise cash. If my assumption is correct, then about half the respondents did not even have the ability to put it on their credit card.

 

[LARS]

What's even more scary is that ONLY 25% said they could definitely get the money. That leaves 75% in some degree of stress. That is quite surprising and suggests an amazingly low threshold between the haves and the have nots and again does not bode well for a consumer driven economy.

 

[SteveR]

There was a time in my adult w*rking life when I was one of them. First marriage; never had more than $1000 in the Savings, no investments, no CDs, no emergency funds, several credit cards maxed out. We lived that way for many years before the marriage ended because of it (and other things). A fresh start after paying off the huge post-divorce debt allowed me to start saving and investing. Later, remarriage to a like-minded woman made a huge difference.

Members of my current wife's family seem to be in the 25% that would have a lot of trouble coming up with $2000 in a month...or 6 months. Over-consumption using limited resources creates chronic debt that prevents the ability to fund unexpected events. Their cure...get another credit card or see if family will bail them out. Some people just don't "get it." You can't spend your way out of debt. You also can't credit card you way out either. Plastic money is too easily spent. It is an endless wallet, until the bill arrives. I wonder how many domestic disputes are the result of credit card bills? I had my share.

Of course, the average American (75%) anyway, seem to be following the lead of our government leaders all to well....spend today, let your grandchildren pay off the debts. (if they are all not slaves to China by then).

 

[chinaco]

This is nothing new.

Maybe the numbers went up a little because of the recession.

The reasons range from poverty to middle class people just spending all their money. In both cases they live paycheck to paycheck.


I was in that situation at a very young age... but by the time I was 21 (in the 70's)... I could have raised that amount back then. How... I saved it. I did not make much money back then and I was careful with it.

But I have siblings that are just the opposite.... they are part of those statistics.... and there is absolutely no reason for it other than they blow all of their money... ins a few cases not willing to work regularly. Although they usually raised the money... How... by asking responsible family members for loans (that wind up being gifts because they would never get repaid).

 

[Walt34]

There was a time in my adult w*rking life when I was one of them. First marriage; never had more than $1000 in the Savings, no investments,....

Wow, that could have been written by me. After my divorce and I bought a house by myself, from day one I kept a minimum of $2k in savings. That was in 1986. For a couple months it dipped slightly below that for a new water heater. Now I'd want that number to be $20k. DW is more conservative than I am.

But we have relatives on both sides who seemingly can't stand to see a dollar in the bank. We know that eventually and inevitably we will need to spend for a new central A/C, furnace, roof, major car repairs, etc. so we already have the money set aside for those events. When those things happen we want to be in a position to just write a check and make the problem go away.

What we don't understand is why that's so hard for so many people.

 

[Delawaredave5]

The bottom 80% of Americans have a net worth of $15k (from Economic Policy Institute).

This is consistent with subject article of huge number of folks "not able to raise $2,000".

I have a hard time understanding how the "pleasure of stuff" bought with all one's paycheck exceeds the anxiety created by having little/no savings.

I don't think it is "human nature" - rather "societal nature". People in Japan/Asia make less, have less, yet save more.

 

[Wheel]

Sadly, we have gone from a land of equal opportunity to a land of equal outcome. Everyone has to have a big screen TV, new car, etc., etc., etc. Whether it's affordable or not, people feel they are "entitled" to it.

I truly fear for our society in the future.

 

[rescueme]

Sadly, we have gone from a land of equal opportunity to a land of equal outcome. Everyone has to have a big screen TV, new car, etc., etc., etc. Whether it's affordable or not, people feel they are "entitled" to it.

While DW/me have not "fit the mold", as LBYM'ers, I wonder how good our economy would be without this consumer driven lifestyle?

 

[Gone4Good]

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.

27.9% 'certainly unable' isn't terribly surprising. 24.9% of US Households report income below $25,000 per year. Some 18% earn just 1.25x the poverty threshold. Plenty of poor people in the most affluent nation on earth.

 

[MichaelB]

According to a study performed by the National Bureau of Econ. Research nearly 50% of Americans could not definitely/probably raise $2,000 in one month.

I guess with Federal transfer payments at all time highs this makes sense, but it still makes me very suspect on the strength of the economy.


Nearly Half of Americans Are ‘Financially Fragile’ - Real Time Economics - WSJ

The article makes no mention of how this has changed over any period of time. It could be an improvement vs 1999.

In the corporate world we used to call these "gee whiz numbers". They look impressive but without context don't lead to any meaningful conclusion.

 

[travelover]

This would be a good article to bear in mind as we start talking about replacing social security with a 401(k) like plan. I've already got enough relatives that fit into the "Can't raise $2000" category. God help me when I have to pay for their retirement, too.

 

[donheff]

There was a time in my adult w*rking life when I was one of them. First marriage; never had more than $1000 in the Savings, no investments, no CDs, no emergency funds, several credit cards maxed out. We lived that way for many years before the marriage ended because of it (and other things). A fresh start after paying off the huge post-divorce debt allowed me to start saving and investing. Later, remarriage to a like-minded woman made a huge difference.

Wow, that could have been written by me.

+1, except that I carried it into my early 30s. My first son was born at home with no medical insurance. After the divorce a few years later my ex moved out east and I spent most of what could have gone to savings flying my son out to Chicago for visits. After I moved out east I was able to turn things around and eventually met a like minded woman who stiffened my back bone a bit more. Twenty five years later -- ER . The result is that I am sympathetic with people living from check to check.

 

[meierlde]

Interestingly the financial pundits have been saying for at least 40 years one should have 6 months income stashed in a bank account. However the article demonstrates that they are wasting their breath. My guess is that if you inflation adjusted the 2000 dollar amount the answer would be the same from at least 1950 to the present. Of course society works hard to convince people not to delay gratification (live richly....). So society speaks with a forked tounge, but so what else is new?

 

[ERD50]

Interestingly the financial pundits have been saying for at least 40 years one should have 6 months income stashed in a bank account. However the article demonstrates that they are wasting their breath. ...

The problem is they are doing a lousy job of 'selling' the idea of an emergency fund. It's all pain, sackcloth and ashes. Who wants to 'buy' into that?

They really need to 'sell' an emergency fund as power, freedom, flexibility. Give real examples of Person A and Person B, both have a their car break down. Person A has no access to funds (no savings, credit cards maxed out). So A loses their job since they can't get to work, they lose their hot girlfriend, their apartment, etc. It's all a downward spiral, all for the sake of not bothering to save up for a while.

Person B, dips into savings, gets the car fixed, gets the hot girl, never misses a beat. Yes, he will give up a little along the way to get that savings built, but life is so much better for him. The advisors have to glorify the near, mid and long term over the short term.

This is the story I've told my kids as they go out on their own. Some savings is POWER. It can make life so much easier and enjoyable. Small pain for BIG GAIN. They 'get it'.

-ERD50

 

[Hamlet]

People need to remember that for a large chunk of the country, $2000 is a huge amount of money.

When you make $8/hr like my brother, saving $2000 is pretty tough.

You don't have to be a spendthrift to have trouble making ends meet on $16k/year.

There are tens of millions making that or less in this country. Just about everyone that waits on you in any store you go to makes less than that per year.

 

[GregLee]

Person B, dips into savings, gets the car fixed, gets the hot girl, never misses a beat.

I think further distinctions are appropriate, since I'm not quite an A or a B. My wife and I, except in the very early years, never had a savings account and kept our checking account as near zero as possible. I never followed this paradigm of saving up to buy things or pay bills since I discovered the wonder of credit cards. We had a lot of them, our credit was always good, and we didn't have to budget. Keeping money in a checking or savings account would mean not paying down our CC debt and paying high interest unnecessarily, so we never did that.

However, we didn't live richly, and we had some retirement savings and some investments. So going without a cash fund and not budgeting aren't necessarily accompanied by improvidence. Reading this thread, I'm surprised at how many here still handle their finances in what seems to me to be a rather old fashioned way.

 

[ERD50]

I think further distinctions are appropriate, since I'm not quite an A or a B. .... Keeping money in a checking or savings account would mean not paying down our CC debt and paying high interest unnecessarily, so we never did that.

I was thinking in terms of building up the emergency fund after paying down any CC debt, but there may still be a case for building up some liquid funds first. If your credit line gets cut off, you're stuck in an emergency. So while it seems like a poor choice to have savings earning near zero with a high % CC loan, it still might save your rear sometime. A bit like insurance, a 'bad deal' on pure economic terms if you never use it, but it's there if/when you need it.

Reading this thread, I'm surprised at how many here still handle their finances in what seems to me to be a rather old fashioned way.

What do you mean by that? Just curious, not agreeing or disagreeing.

-ERD50

 

[GregLee]

What do you mean by that ["old fashioned finances"]?

I mean keeping cash and budgeting. Saving up in advance for large expenses. That's how my parents handled their finances, and they taught me how to do that. But then I got my first credit card and discovered I didn't have to budget and save up cash anymore. I wouldn't want to go back to that.

 

[Backpacker]

SteveR, Walt34, donheff ; looks like a club could be formed here of folks with spendthrift ex spouses. You can add me to the list! First marriage, my wife's solution to everything bad mood she ever had was spend more to feel better, and then nag me that I didn't make enough money.

Current wife is quite possibly more frugal than I am

 

[ziggy29]

Sadly, we have gone from a land of equal opportunity to a land of equal outcome.

We have? The distribution of income and wealth in the country over the last couple decades is telling a different story. Not intended to be a political statement, just a data point that would seem to contradict this assertion.

 

[donheff]

SteveR, Walt34, donheff ; looks like a club could be formed here of folks with spendthrift ex spouses.

No, my ex wasn't a spendthrift. She is actually pretty frugal to this day. But we both lived pretty close to the edge back then with no savings. I didn't start saving until I was 32. But from then on DW and I took the savings seriously which is why we were able to ER. As you might guess, I am blown away by some of the dreamers who post here with big nest eggs by their 30s. They are a different breed than I was.