Pew: State of U.S. Family Balance Sheets Is Precarious
Strains on income, expenditures, wealth leave families vulnerable to financial emergencies
WASHINGTON—Even as the national economy continues to recover from the Great Recession, most U.S. families remain financially fragile, according to a new analysis by The Pew Charitable Trusts.
Pew’s report, The Precarious State of Family Balance Sheets, draws from multiple nationally representative data sources to develop a clear picture of household financial security in the United States.
“Our analysis finds that many American families, even those with relatively high incomes, are walking a financial tightrope,” said Erin Currier, director of Pew’s financial security and mobility project. “Many have little if any cushion to absorb an unexpected financial setback. It’s a precarious state that threatens not just financial security, but upward mobility.”
The findings in the report reveal widespread financial fragility:
- Although income and earnings have increased over the past 30 years, they have changed little in the past decade. The typical worker had wage growth of 22 percent between 1979 and 1999 but just 2 percent from 1999 to 2009.
- Substantial fluctuations in family incomes are the norm. In any given two-year period, nearly half of households experience an income gain or drop of more than 25 percent, a rate of volatility that has been relatively constant since 1979.
- The Great Recession eroded 20 years of consumption growth, pushing spending back to 1990 levels. As a result, the net increase in average annual household spending is just 2 percent since 1990.
- The majority of American households (55 percent) are savings-limited, meaning they can replace less than one month of their income through liquid savings.
- Even when pooling all of its resources—including from accounts that are potentially costly to access, such as retirement accounts and investments—the typical middle-income household can replace only about four months of lost income.
- Most families face financial strain across all balance sheet elements: income, expenditures, and wealth. Fully 70 percent of households face at least one of these problems, with many confronting two or even all three.
The report concludes by noting that policymakers should focus on policies and programs that support asset accumulation, which can help meaningfully improve American families’ financial standing.
Sources for the data in the report include the Congressional Budget Office, the U.S. Census Bureau’s Current Population Survey, the University of Michigan’s Panel Study of Income Dynamics, the U.S. Bureau of Labor Statistics’ Consumer Expenditure Survey, and the Federal Reserve Board’s Survey of Consumer Finances.
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