The Federal Reserve's annual "Report on the Economic Well-Being of U.S. Households" was recently released, providing us with an interesting snapshot on how American households felt about their family finances in 2015, keeping in mind that this was the 6th year of what is turning out to be a relatively long period of economic expansion after a devastating recession. The survey used a sample of adults aged 18 and older and includes more than 50,000 individuals from randomly selected households. It also included randomly selected respondents from lower income households where total annual income was less than $40,000. In this posting, I will pick out a few salient points concerning America's perception of their own economic well-being that are hopefully of interest to my readers.
The authors of the report note that the overall well-being of American families and individuals showed mild improvement on a year-over-year basis; 69 percent of respondents agreed that they were either "living comfortably" or "doing okay" compared to 65 percent in 2014 and 63 percent in 2013. On the other side of the coin, 9 percent of respondents stated that they were finding it "difficult to get by" and 22 percent stated that they are "just getting by". The 31 percent of Americans that are struggling financially represent roughly 76 million adults! Here is a graphic that shows the percentage of American adults who are either "doing okay" or "living comfortably", showing how economic well-being varies with educational attainment and how it has varied over the previous two years:
Here is a table showing how financial well-being varies with family income, race and ethnicity, education and marital and parental status:
Let's look at the worst case scenarios. When income level is considered, 49.3 percent of respondents with incomes of less than $40,000 have a negative sense of their economic well-being. When race and ethnicity is considered, 37 percent of Hispanic respondents have a negative sense of their economic well-being. When educational attainment is considered, 38.8 percent of respondents with a high school degree or less have a negative sense of their economic well-being. When marital and parental status is considered, 53 percent of respondents that were both unmarried and had children under the age of 18 have a negative sense of their economic well-being. Obviously, when close to half of some demographic groups have a negative sense of their economic status, the recovery since the Great Recession has left behind tens of millions of Americans.
Now that we've seen how Americans assess their own economic well-being, let's look at how Americans assess their financial challenges. Here is a graphic showing how Americans felt about the financial challenges facing them and how these challenges varied with household income level:
Among the lowest income Americans, the greatest concern was their ongoing ability to pay their bills (i.e. short-term needs). Middle income Americans are most concerned about the costs of health care. In sharp contrast, the highest income Americans are most concerned about funding their retirement, a long-term concern that barely registers among the lowest income Americans.
Let's look at spending versus savings. When asked how their saving compares to their income, 48 percent of American adults stated that they spent less than they made in the last 12 months, 31 percent stated that their income was equal to their spending and, most significantly, 21 percent of American adults stated that their spending exceeded their incomes with 6 percent reporting that they had no income at all. Among low income Americans, only 67 percent stated that their spending was either less than or equal to their income with 19 percent having spending that exceeded their incomes and 13 percent having no income at all. Switching gears for a moment, here is a graph showing how the savings rate for all Americans has varied since 1959:
Here is a graphic showing how the percentage of income saved varies with non-fully retired family income level:
A whopping 51 percent of families with household income less than $40,000 state that they have saved nothing during 2015.
With this data in mind, let's look at the financial hardships that faced American families during 2015 and how prepared they were for household economic crises. Here is a graphic showing the types of economic hardships that were faced by American families and the percent of respondents that experienced each type of hardship:
All-in-all, 18 percent of respondents experienced some type of household economic hardship, an improvement over the 24 percent from 2014.
Now, let's look at how Americans fund family emergencies, things like car breakdowns, emergency visits to the dentist, doctor or a hospital or a home repair. When it comes to emergency savings, the authors of the report asked several different questions as follows:
1.) Do you have enough savings set aside to cover three months of expenses should an emergency arise? Forty-seven percent of respondents answered yes.
2.) If you were to lose your main source of income, could you cover your expenses for 3 months by borrowing money, using savings, selling assets or borrowing from family or friends? Sixty-eight percent of respondents answered yes.
3.) How would you pay for a hypothetical emergency expense of $400. Fifty-four percent reported that they could fairly easily handle such an expense from savings, on a credit card or by using cash.
Looking through the responses on family financial hardships, we find the following interesting data:
1.) 53 percent of Americans and their families do not have enough savings to cover three months of expenses if a family emergency arises.
2.) 32 percent of Americans and their families have no means to access three months of emergency funds.
3.) 46 percent of Americans and their families do not have the means to handle an emergency expense of $400 and would have to borrow money or sell something to do so. Of these, 39 percent stated that the largest emergency expense that they could cover with cash on-hand is $100, 16 percent could cover an emergency expense of between $100 and $200 and 22 percent could cover an expense of between $200 and $400 using cash on-hand.
4.) 31 percent of Americans and their families would have absolutely no way to cover an emergency expense of $400.
Interestingly, the authors also looked at spending on emergency health care. Twenty-two percent of respondents indicated that they had a major unexpected medical expense over the previous 12 month period with a median out-of-pocket cost of $1200 and an average out-of-pocket cost of $2782. Here is a graphic showing what percentage of respondents needed emergency medical help of various types but didn't get it because they couldn't afford it:
While the authors of the financial well-being report for 2015 generally observed that there was an improvement in the financial picture of some American family units, it is interesting to note that a sizeable subset of Americans simply does not have the financial resources necessary to provide for emergency expenses, let alone planning for a future retirement. Given that the long-term viability of the American entitlement programs is questionable, the financial future for millions of Americans looks rather bleak.