23 January 2019

The precarious finances of the average American

To me the most unsettling aspect of the month-long Federal government shutdown is the realization of how many Americans live paycheck-to-paycheck.  Back in 2011 a CNN article reported that most Americans don't have the funds to cover a $1,000 emergency expense.
A majority, or 64%, of Americans don't have enough cash on hand to handle a $1,000 emergency expense, according to a survey by the National Foundation for Credit Counseling, or NFCC, released on Wednesday.

Only 36% said they would tap their rainy day funds for an emergency. The rest of the 2,700 people polled said that they would have to go to other extremes to cover an unexpected expense, such as borrowing money or taking out a cash advance on a credit card...

Many respondents, 17%, said they would borrow money from friends or family. Another 17% said they would neglect other financial obligations -- like a credit card bill or mortgage payment -- in order to free up some funds.

Alternatively, 12% of the respondents said they would have to sell or pawn some assets to come up with $1,000 and 9% said they would need to take out a loan. Another 9% said they would get a cash advance from a credit card, according to the NFCC...

An earlier study by the same organization found that 30% of Americans have zero dollars in non-retirement savings.
And now, eight years later, large numbers of Americans are unable to buy food if they miss a paycheck.  The image embedded at the top is from an article this week in Quartz:
While the average American maintains an average balance of $4,560, this is highly dependent on age. Balances are relatively low for the young, about $2,340 for those under 25, but grow as people get into middle age, reaching over $6,000 for people 45-54, before falling as they get older. At the peak of a person’s earning power, typically in middle age, they are given larger credit limits from card companies.

Finally, the analysis estimated the share of people who have “revolving” credit card debt—meaning they don’t pay off their balance in full at the end of the month. Stavins found that 44% of adults have revolving credit, and these people typically have an outstanding balance of $6,600. Revolvers are generally poorer and less educated than the typical American.
It's kind of scary.


  1. this seems appropriate with all the unpaid federal employees who have run out of money. i thought the rule was to have six months of cash in the bank at all times, for use as a safety net. maybe 'was' is the key word?


  2. 6 months is the recommendation, but many, very many simply can't get there.

    Minimum wage is low, rent is high, job hopping costs a lot of money due to unpaid weeks between, health care cost keeps going up and student debt is crushing.

    The cost of college has gone from a car to a house. Many people do not realize the impact of that on starters, especially for couples.

    Furthermore, the income of federal employees has not remotely kept up with inflation, so it factually has gone down a lot.

  3. I couldn't sleep at night with that kind of debt. I agree with the first post above. Always have a minimum of 6 months net pay available.

    I think a study came out late last year that 60% of householdh could not pay an emergency repair bill of $400. Astounding, and scary.

  4. I've heard the rule about having six months of cash in your savings account at all times. I don't know anyone whose salary is high enough that they can actually live by that rule.

    As for me, after I have paid rent, utility bills, and payments on my various medical debts, I have barely enough money to buy food and gasoline for the rest of the money. Saving money, however small the amount, is a utopian dream.

    During summers, when I can take extra work, I am able to put a few thousand dollars in the bank. But by October, between various emergencies and trying to pay off my debt, that is gone.

    Low wages and skyrocketing medical costs have put most Americans in this situation, sadly.

  5. I never had any savings, but then I spent 2017 getting my teeth fixed, then 2018 losing jobs. Could I come up with $400 for car repair? Funny you asked, because my car won't start and my truck decided to act up yesterday. Sure, I can do it, because I've got a credit card limit that's equivalent to two year's salary.

    1. You have a car AND a truck? You must have been (are?) doing pretty good to be able to afford both. I have a 2004 Honda Accord, which I cannot afford to replace until next year, when I can start getting my SS.

    2. The '97 car was a gift, a hand-me-down, and the '99 truck belonged to my late husband. I kept both because having old cars and a job means you always need backup.

    3. Darn it, I hate good excuses.

  6. The fallacy of averages starts to creep in.

    Maybe not a large percentage, but many people are sitting on huge nest eggs (hundreds of thousands) and religiously put away money and live off the rest and tell people they are "broke" all the time.

    Others are so hugely in debt that you can't understand it, 20, 30, 40k+ and not to mention student loans. I feel that many situations are starker than the average 6k in revolving debt.


Related Posts Plugin for WordPress, Blogger...