The Financial Vulnerability of Americans

April 7, 2014

Excessive household debt was crucial in explaining the severity of the Great Recession. So where are we now? Have households strengthened their financial position since 2009? Are household balance sheets strong enough to prevent another massive pull back in spending if there are significant job losses?

To answer to these questions, we look at evidence from the 2012 National Financial Capability Study by FINRA. (We are grateful to Annamaria Lusardi, an expert on financial literacy,  for pointing us to the data used in this post.) This survey is a representative sample of 25,000 individuals who were asked mostly qualitative questions about their finances. The survey was put into the field three years after the worst of the Great Recession.

The survey responses are shocking, and should put fear into all of us about the financial vulnerability of U.S. households.

The survey asks the following question: “How confident are you that you could come up with $2000 if an unexpected need arose within the next month?” Here are the answers:


Almost 40% of individuals in the United States either could not or probably could not come up with even $2000 if an unexpected need arose.

Another question asks: “Have you set aside emergency or rainy day funds that would cover your expenses for 3 months, in case of sickness, job losses, economic downturn, or other emergencies?” Here the answers:



In 2012, almost 60% of individuals in the United States did not have three months of emergency funds that they could access to cover an emergency. The majority of U.S. households do not have the buffer they need to help them survive through such shocks.

Households also report that they have too much debt. Here are answers to the question: “How strongly do you agree or disagree with the following statement — I have too much debt right now”. The answers are on a 1 to 7 scale, with 1 being “strongly disagree” 4 being “neither agree nor disagree”, and 7 being “strongly agree”.


More than 20% of individuals “strongly agree” that they have too much debt. If we add people who at least somewhat agree with the statement, then over 40% of households believe they have too much debt.

So households are extremely vulnerable to shocks, and many have too much debt. Are these two patterns related? The answer is unequivocally yes. Here is the easiest way to see it. If we isolate the sample to individuals who say they do not have three months of emergency funds in savings, and then we see how many of these individuals say they have too much debt, we get a clear picture of what is going on. (Here we group answers 1-3 on the debt question into “disagree”, and 5-7 into “agree”):


As the chart shows, the grand majority of people who say they do not have emergency funds also say they have too much debt. We keep the vertical axis in terms of the overall population, not just those that do not have emergency funds. So as you can see, 35% of individuals both have too much debt and do not have three months of reserve funds in case of an emergency.

Remember that debt increases the vulnerability of these individuals. If they lose their job, they will still owe interest payments on their debt. Debt doesn’t disappear just because your income does.

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12 Responses to The Financial Vulnerability of Americans

  1. Karen S. on April 7, 2014 at 8:14 ami

    Great and true article. I am a disabled Mom of a 12 yr.old. If not for Social Security, we’d be homeless. The Republicans give me panic attacks at least once a week. Thank you for your informative report.

    • Ned on April 8, 2014 at 3:41 ami

      Karen, I’m disabled too. A quadriplegic that has been in a wheelchair since high school, but I have always worked and made excellent money. It’s the Democrats, liberals, and big government killing America. Most people are poor or barely getting by due to their lack of education, laziness, and/or poor personal choices. I know plenty of able bodied and so called “handicapped” people far less handicapped than me sitting on their asses living off the government. The vast majority of people have made their own beds and now have to sleep in them.

      • George on April 8, 2014 at 9:32 ami

        Let me guess, AMI: You voted for Mitt and Obama is not an American citizen and teachers are paid too much and we need to eliminate unions.

        We will go nowhere, as a country or a people, while these harsh partisan stereotypes persist. Politicians have contaminated minds by creating these stereotypes in a “divide and conquer” strategy.

        Most people are NOT “poor or barely getting by due to their lack of education, laziness, and/or poor personal choices.”

        If you had been paying attention, you would have noticed we have been through a catastrophic recession and “recovery” is feeble.

        Corporate profits are skyrocketing, their taxes have plunged, but the increase goes to shareholders & execs, not the workers. “Free trade” agreements have resulted in millions of U.S. jobs being shipped overseas. Corporate capitalism (profit) has meant countless jobs are being staffed by low-wage no-benefits temp. workers, not direct employees. There are and average 3 job applicants for every job offer. Kids getting out of college are forced to take minimum-wage jobs because they have to pay off huge student loans.

        Before you utter blanket condemnations, you should take a bit of time to familiarize yourself with what’s going on in the country. And if you confine your reading to right-wing media, consider diversifying a bit.

      • rich on April 8, 2014 at 11:56 ami

        For someone in your situation I find the lack of empathy interesting.

        Maybe your skills are very unique but I can remember an interview with Stephen Hawking emphasizing the help he has received and being thankful and supportive of state health services.

        I’m just trying to figure how much more exceptional you are than he.

        Oh and by the way I’m in a similar situation to you.

      • Heidi Viramontes on April 8, 2014 at 1:45 pmi

        Bravo you are an excellant example that shows how good work ethic and determination will lead to success. I am a second generation American Hispanic. Unfortunetly Americans have become lazy and accustomed to the benifits of this fantastic country we live in . I work in a third world country and am amazed at how much people can do with the little they earn . I am humbled at thier fortitude and wisdom to survive and manage what they value most , familiy .

  2. C. Charlie on April 7, 2014 at 9:12 ami

    Great article as usual. It would be great to see a comparison with other developed countries.

  3. Michelle Allan on April 7, 2014 at 9:24 ami

    Great and true article.I have been steadily employed for 35 years, mostly service jobs. The Democrats are taxing me out of my self employment cleaning co.. I’m now paying for Health care for lower income thanks to HCR.I can happily say that hard work has gotten me an emergency fund and self employed IRA. No help from the Government.

    • htgriff on April 8, 2014 at 8:31 ami

      Assuming you make less than about 150K per year, the increase in your taxes was almost certainly caused, and will be increased again, by the republicans, should they actually follow through with something like the Ryan budget. We need a functioning government, and if the dems have increased taxes on you, I suspect its largely because increases on the rich are a non starter in today’s climate. The money has to come from somewhere.

  4. DCE in NYC on April 7, 2014 at 10:31 ami

    “Remember that debt increases the vulnerability of these individuals. If they lose their job, they will still owe interest payments on their debt. Debt doesn’t disappear just because your income does.”

    That correlation also reflects poorly on the resiliance of financial institutions because those loans are all carried as assets on the books of some lender.

    True, we have stress tests and loan loss reserves, but we also have significant managerial discretion when it comes to assigning these assets to accounting tiers.

    Whether and the extent to which these loans are properly valued by or overly concentrated in financial institutions may still be an open question.

  5. Jon Facemire on April 7, 2014 at 10:59 ami

    There is some good data here, but I have to wonder how these values compare to historical trends. Is any data on that available?

  6. MJ on April 7, 2014 at 11:05 ami

    I’m an employed MBA with a family. Since receiving my degree a year and a half ago, I have had continuous employment at the same job which paid above the median for my class. However, it has been impossible to net save a rainy day fund due to having a family. The corporate healthcare plan got significantly worse for families since I accepted the job offer; and there is no way to ‘cost save’ when your wife and child both need emergency room visits multiple times in a year.

    My rent is already cheaper than most my coworkers without children. Buying a house is not in our plans for the next three years.

    Between lowering real wages, increased housing costs, and increased housing costs, my current path is not towards the upper-middle class life into which I was born despite having similar employment to my father (he was a low level in-house lawyer at this point in his career) and a similar family structure.

    A period of unemployment would be disastrous to my family. The job market is completely stagnant making the possibility of a prolonged, bankrupting period of unemployment a non-zero possibility.

  7. spencer on April 8, 2014 at 4:08 pmi

    Ok, you now have reply in your comments.

    But I have been trying to figure out how to comment for a couple of weeks and do not know how except when you have the reply button.