Friday, January 09, 2015

Americans Are Living On The Edge

Stagnant incomes have resulted in little or no emergency savings for most Americans.

Approximately 62% of Americans have no emergency savings for things such as a $1,000 emergency room visit or a $500 car repair, according to a new survey of 1,000 adults by personal finance website

In the event of an emergency, they say they would have to cover the cost by reducing spending elsewhere (26%), borrowing from family and/or friends (16%) or using credit cards (12%).

Financial planners typically recommend that people have a minimum of three to six month’s worth of living expenses in emergency savings. Clearly, $500 or $1,000 is far less than that, so this survey indicates that a significant majority of Americans are living on the edge, from paycheck to paycheck.

Last summer, in the same size survey, found that 26 percent of all Americans have no emergency savings whatsoever.

Personal savings are low by historical standards, and they are trending downwards.

Personal savings in the US decreased to 4.40 percent in November from 4.60 percent in October of 2014, as reported by the US Bureau of Economic Analysis. Personal savings averaged 6.81 percent from 1959 until 2014, reaching an all time high of 14.60 percent in May 1975 and a record low of 0.80 percent in April 2005.

The downward trend in savings is little surprise. If people don't have money to save, then they won't — or can't.

Americans are 40% poorer today than they were in 2007. The net worth of American families — that is, the difference between the values of their assets, including homes and investments, and liabilities — fell to $81,400 in 2013, down slightly from $82,300 in 2010, but a long way off the $135,700 in 2007, according to a report released last month by the nonprofit think tank Pew Research Center in Washington, DC.

The problem isn't isolated to the fact that most Americans suffered from the housing crash. The issue is also related to stagnant wages, which has been a big problem for decades.

After looking at five decades’ worth of government wage data, the Pew Research Center found that for most U.S. workers, real wages — that is, after inflation is taken into account — have been flat or even falling for decades.

Pew noted the following:

"After adjusting for inflation, today’s average hourly wage has just about the same purchasing power as it did in 1979, following a long slide in the 1980s and early 1990s and bumpy, inconsistent growth since then. In fact, in real terms the average wage peaked more than 40 years ago: The $4.03-an-hour rate recorded in January 1973 has the same purchasing power as $22.41 would today."

The problem of stagnant wages has continued over the past year, with a mere 1.7% increase in average hourly earnings from December 2013 to December 2014. However, average hourly earnings fell 0.2% in December, the first drop since July 2013.

In November 2014, the average weekly wage was $853 versus $833 for November 2013, according to the Bureau of Labor Statistics.

This is not an environment that allows Americans to save for personal or family emergencies, much less plan for retirement.

So, the findings by should surprise no one.


  1. Anonymous3:35 PM

    But the economy is the strongest it's ever been!!!...(when you don't look at it very closely).
    We are all on the edge, as is the economy itself. One minor push could send us all tumbling. great article, thanks for writing.

  2. Anonymous12:43 PM

    Another great article and clearly laid out