Nearly Half of Americans Are "Financially Fragile"
May 25, 2011
Nearly half of Americans say that they definitely or probably couldn't come up with $2,000 in 30 days, according to new research, raising concerns about the financial fragility of many households, reports the Wall Street Journal.
In a paper published by the National Bureau of Economic Research, Annamaria Lusardi of the George Washington School of Business, Daniel J. Schneider of Princeton University and Peter Tufano of Harvard Business School used data from the 2009 TNS Global Economic Crisis survey to document widespread financial weakness in the United States and other countries.
The survey asked, "If you were to face a $2,000 unexpected expense in the next month, how would you get the funds you need?"
- In the United States, 24.9 percent of respondents reported being certainly able, 25.1 percent probably able, 22.2 percent probably unable and 27.9 percent certainly unable.
- The $2,000 figure "reflects the order of magnitude of the cost of an unanticipated major car repair, a large copayment on a medical expense, legal expenses, or a home repair," the authors write.
- On a more concrete basis, the authors cite $2,000 as the cost of an auto transmission replacement and research that reported low-income families claim to need about $1,500 in savings for emergencies.
Financial fragility isn't limited to low-income groups. "A material fraction of seemingly 'middle class' Americans also judge themselves to be financially fragile, reflecting either a substantially weaker financial position than one would expect, or a very high level of anxiety or pessimism," the authors write.
Lusardi, Schneider and Tufano also looked at how different countries compare.
- "Perceived capacity to cope with an emergency is lowest in the U.S., U.K. and Germany."
- "The highest levels of coping capacity are found in Canada... Netherlands... and Italy."
Source: Phil Izzo, "Nearly Half of Americans Are 'Financially Fragile'," Wall Street Journal, May 23, 2011. Annamaria Lusardi, Daniel J. Schneider and Peter Tufano, "Financially Fragile Households: Evidence and Implications," National Bureau of Economic Research, May 2011.
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