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Posted: Thursday, 14 August 2014 6:18AM

Fed: Typical American family doesn't have $400 on hand



A new survey says 40 percent of American households are showing signs of financial stress. And, five years after the recession, many are still struggling with tight credit, debt and retirement issues.

The Federal Reserve survey shows a typical American household cannot raise $400 without borrowing money or selling possessions. LSU Economist, Dr. Jim Richardson, says that's a big problem.

"If they lose their job, they're in big trouble. If their income falls for any reason, they're in big trouble. If there's any unexpected expenditure, they're in big trouble."

According to the report, nearly two-thirds of those under 45 have not set funds aside to cover their expenses for a three-month period. Richardson says that's not a surprise.

"Most people don't do that. Most people live paycheck to paycheck."

In fact, the fed says a typical American household cannot raise $400 without borrowing money or selling possessions.

Richardson says it goes back to the recession of five years ago.

"Obviously, it slowed the economy down considerably," he says. "And, it really had an impact on peoples' wealth. It also had an impact on people who had to stop working or had to retire earlier than anticipated, so they would stop building up any wealth."

Many households said they are not prepared for retirement. Only half of the respondents were putting some portion of their income away in savings, and one-fifth said they spend more than they earned.

Richardson, says you can't really judge the health of the country's economy by Wall Street's recovery.  

"This has actually been one of the contributors to a bigger distribution problem, as well. The stock market tends to be higher income people, and their wealth has recovered. But, at the lower end, the wealth has not recovered."

"You don't have the same vitality going on in the economy as you would if peoples' wealth situation were a little bit better," says Richardson.

According to the fed study many households are still struggling with tight credit, education debt and retirement issues.

"You see a lot more people working just at the margin. And that's always scary...because if there's another recession, that puts them more and more in the hole."

The Fed study shows that the economy has made progress to the point where a majority of U.S. households said they were "living comfortably" or doing OK financially.
 
But almost 40 percent reported that their families were "just getting by" or struggling to do so. And more people reported that their financial situation was worse rather than better off compared to five years earlier.
 
The Fed's findings are in agreement with many other studies indicating the lingering effects of the 2007-09 recession and the slow, uneven recovery...skewed toward the wealthy.

Financial strains also were evident in health spending: About one-third of respondents to the fed study said they had put off medical care in the previous 12 months because they could not afford it.

 

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