Being Financially Fragile in America – National Consumers League
By NCL Public Policy intern Melissa Cuddington
Nearly 36 percent of working Americans could not cover an unexpected $2,000 expense within 30 days. According to a survey done by the 2015 National Financial Capability Study (NFCS), working adults (ages 25 – 60) who answered “probably not” or “certainly could not” to the question of whether they could come up with $2,000 in 30 days. Such consumers are considered “financially fragile.”
The 2015 Survey for Household Economics and Decisionmaking (SHED) also revealed that 41 percent of respondents are considered financially fragile when faced with an emergency expense of $400. 41 percent said they would have to charge this unexpected expense to a credit card or use money from a savings account.
These statistics are not surprising considering that during the recession of 2008, nearly 50 percent of working adults were considered financially fragile.
- Women (42 percent) are significantly more likely to be economically stressed than men (29 percent)
- Financial fragility decreases steadily with increasing income, thus, paying workers more decreases their precarious finances
- Financial fragility is about equally distributed across age groups, although fragility is slightly higher among 40- to 49-year-olds
According to a NEFE Digest article, a number of factors can cause financial fragility. A lack of assets include things such as low borrowing capacity on credit cards, inadequate health insurance, renting a house instead of owning and lack of access to traditional bank accounts. The second is debt, including medical, education and credit card debt. Some of these issues can be addressed with improved financial literacy.
The NCL is especially interested financial fragility in the U.S. for reasons that sync up perfectly with our mission: protecting workers and paying them a fair wage and ensuring consumer protections from predatory practices like payday loans and bank fees and excessively high interest on student or auto loans. We also agree with NEFE Digest that financial literacy reduces financial risk because consumers make better, more informed decisions when they have more knowledge and information. NEFE Digest notes that better financial literacy lowers one’s likelihood of being financially fragile–regardless of age or income.
Financially literate consumers bolster the overall health of the economy. This is why programs such as NCL’s LifeSmarts program, which educates youth the environment, health and safety, personal finance, technology and their rights as consumers, are so important. Financial literacy education should start young and continue throughout adulthood. Doing so reduces the risk to all consumers that they will become financially fragile.
