Sunday, July 21st, 2019

The End Of The American Dream – Half Of US Households Are “Financially Fragile”

Published on June 2, 2016 by   ·   No Comments

SIMON WILSON/MONEYWEEK

The middle class in America is in crisis, with incomes falling and life expectancy worsening. Why? And what can be done about it?

WHAT’S IT LIKE TO BE A MIDDLE-CLASS AMERICAN?

Increasingly precarious, it seems. In an article entitled “The Secret Shame of Middle Class Americans” in this month’s issue of The Atlantic, the writer Neal Gabler – an author, film critic and academic – came out as one of the many millions of apparently middle-class Americans who are in fact living in a “more or less continual state of financial peril” –scrabbling around to make ends meet, and mostly failing.

Gabler draws attention to a regular survey by the Federal Reserve, which asks consumers a set of questions, including how they would pay for a $400 emergency. “The answer: 47% of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all”, writes Gabler. “Four hundred dollars! Who knew? Well, I knew. I knew because I am in that 47%.”

DOES THE DATA SUPPORT THIS?

Yes. Research into this niche area of microeconomics – day-to-day “financial fragility” – has boomed since the Great Recession, according to David Johnson, an economist at the University of Michigan who specialises in income and wealth inequality. A 2014 survey study found thatonly 38% of Americans would cover a $1,000 emergency medical bill or a $500 car repair bill with money they had saved.

Another academic study found that a quarter of households would definitely fail to get their hands on $2,000 within 30 days in an emergency, and a further 19% would be able to do so only by pawning possessions or taking out a payday loan.

WHAT DOES THIS TELL US?

On this basis the researchers concluded that nearly half of Americans are “financially fragile” – and that necessarily includes a sizeable chunk of the middle classes, as the details of the studies mentioned above show. Some 44% of middle-income households said they would struggle to raise the $400. Nearly half of college graduates would not cover a $500-$1,000 emergency with savings.

A quarter of people living in households earning $100,000-$150,000 a year (at the higher-income end of the middle class) claim not to be able to raise $2,000 within a month. Even if you take some of this with a pinch of salt – better off households are likely to have access to other forms of net wealth, albeit less liquid – the picture it paints of a middle-class crisis is stark.

Read More HERE

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