Nearly four out of 10 American families are living on the edge financially, unable to weather a crisis, according to the Financial Industry Regulatory Authority’s Investor Education Foundation.
According to the Finra research, 37% of families that fell into this category, the largest, which ranked at the bottom for the ability to respond to a financial crisis. The research was based on the foundation’s computer analysis of data from more than 27,000 people. The report, “Bouncing Back? The Financial Resilience of Americans,” was released Tuesday.
The majority of the lowest level households earned less than $50,000 a year. The group also is the most diverse with nearly half identifying as Hispanic, African American or Asian American. The data was gathered before the Covid-19 pandemic had made financial situations for many of these families even worse, Finra said. Less than two in 10 families were considered financially resilient in that they could weather a financial crisis.
The report used the level of financial literacy, income volatility, debt, emergency savings, owning a retirement account, having health insurance and owning a home as the factors in determining financial resilience. The report broke the households into four groups: living on the edge, living paycheck to paycheck, holding steady and standing strong.
“Prior to the pandemic, nearly 40 percent of American households faced financial circumstances that constrained their ability to respond to financial crises,” Finra Foundation President Gerri Walsh said in a statement. “This does not bode well for a broad swath of American households looking to rebound from the financial and economic distress associated with the pandemic.
“This may be particularly problematic for African Americans and Hispanics, whose households are much more likely to lack financial resilience than white households.” Walsh added. “Our research certainly gives advocates, policy makers and others a more complete picture of the disparities that exist and provides a roadmap to start to address these areas that contribute to financial resilience and, consequently, financial stability.”
Fourteen percent of households were deemed to be living paycheck to paycheck with high debt and no emergency savings. One-third were categorized as holding steady with stable incomes, emergency savings, low debt and health insurance, but with low levels of financial literacy. Fifteen percent were considered to be standing strong with the best ability to rebound from economic hardships because they demonstrated high financial literacy levels and excellent finances. They were highly educated, with emergency savings and little debt.
The Finra Investor Education Foundation supports research and educational projects designed to give underserved Americans the knowledge, skills and tools to make sound financial decisions.