If you had an unforeseen event transpire in your household that cost $400, would you have the necessary funds to cover it? Nearly half of United States consumers couldn’t, says a new Federal Reserve report that monitors “the financial and economic status of American consumers.”
Although the study has garnered some spotlight attention over some of its findings, one particular revelation is interesting: 47 percent concede that they would have to borrow or sell something (or not have the funds at all) to pay for a $400 emergency. Indeed, $400 may not seem like much today, but for a struggling middle class that lives paycheck to paycheck, it could mean a lot.
When giving a larger figure – $2,000 – the results were rather bleak as it conveyed the idea that a significant portion of Americans are either “financially fragile” or “living very close to the financial edge.” One-quarter of Americans said they could not come up with $2,000 within 30 days, while 19 percent said they would have to either work with a lender or pawn possessions.
But why are Americans facing such pecuniary destitute? Perhaps these findings will answer the question: 49 percent of part-time workers want to work more hours. At the same time, however, 43 percent of homeowners say the value of their home has increased, and 29 percent expect to earn a higher income this year. It’s quite the quandary for many Americans; some are stuttering, while others are earning more. But it appears as if it’s never enough.
David Johnson, an economist who studies income and wealth inequality at the University of Michigan, told The Atlantic that this type of research, which has amplified since the economic collapse, has really garnered new attention in recent years.
“People studied savings and debt,” Johnson told the magazine. “But this concept that people aren’t making ends meet or the idea that if there was a shock, they wouldn’t have the money to pay, that’s definitely a new area of research.”
Over the years, surveys have discovered that most Americans live paycheck to paycheck. Researchers have regularly concluded that many consumers would face financial peril if they missed a paycheck, and many wouldn’t be able to cover a broken refrigerator, a breakdown of their car or a bandage for their water heater.
Earlier this year, a Bankrate.com poll found that nearly two-thirds (63 percent) of Americans wouldn’t be able to pay for a $1,000 hospital emergency room visit or a $500 car repair.
And this is part of the reason why so many consumers – both middle class and the impoverished – take out payday loans. When they don’t have the money to pay for a rundown furnace or the monthly rent, they turn to payday loans, even if the interest rates and fees are exorbitant.
Unemployment rates are down, the stock market is booming, real estate values are going through the roof again and the freshly created money from the U.S. central bank is seeping into the economy. Despite this, consumers still can’t catch a break, save any money or quash any financial stress.
This is why the payday loan industry is a multi-billion-dollar industry, and has grown since the Great Recession in 2007/2008.