This study was SPECIFICALLY about savings; and that's why it's a deliberately misleading thing.
So called "cash buffer" problems are actually a separate problem for many people. For many americans, maintaining a cash buffer is an inappropriate strategy because of their revolving credit balances.
Shameless plug, but this is why my company, Survata, reviews every single survey that goes out through us, to catch biases written into questions. They can seriously skew results. That said, even though I imagine there was some level of confusion about savings v. checking, my guess is that the overall conclusion wouldn't change substantially if you guaranteed the respondents all understood the question identically. The news that Americans don't have nearly enough savings isn't exactly new, and as others have pointed out, there are plenty of situations where living paycheck to paycheck is the only realistic option.
Cynical take: study done by a company that offers loans finds that more people need loans. Kinda self-serving.
Slightly less cynical take: I'm always a bit skeptical of how these studies define "paycheck to paycheck". I remember there was one that defined it as "do you have enough money in your checking account to cover the cost of $BAD_THING?" And one of the top responses was "no, I'd need to pull from my savings account". IMO the distinction between checking and savings is kinda arbitrary. I move all of my cash (beyond what I need for monthly expenses) into a savings account so I can get an extra $100/yr in interest. That certainly doesn't mean I'm living paycheck to paycheck.
It looks like this study broke the paycheck to paycheck group into those that are struggling with their bills and those that aren't. When you look at the breakdown it seems like all of the growth is in the group that is paycheck to paycheck but not struggling with their bills. I'm not sure how to interpret that.
This is a misinterpretation of what the survey data says. It's a widespread one, and worth correcting.
A large fraction of people have debt, such as student loans, mortgages, car loans, etc. If they have a significant amount of extra cash, they'll use it to reduce their debt, because money sitting in a bank account makes less interest than the interest on a mortgage or any other sort of loan. So if you look at these peoples' bank accounts, they don't have any savings. Scary, right? But most of them do have lines of credit, so if they have a financial setback, they won't lose the ability to buy groceries, they'll just take on additional debt.
> There is little financial literacy in this country.
Well, technically if you're drawing cash, you should be drawing it from your checking account and if you're saving it should be in a savings account, so your checking account balance should be relatively low.
> Fewer than 4 in 10 people have enough savings to pay for an unexpected $1,000 expense in cash.
> The rest would have to borrow, use a credit card or take out a personal loan.
What was the income distribution overall of folks in the survey? Do folks not have $1K specifically because they're living paycheck to paycheck, across income levels, or is it because they lack saving habits?
CNN is literally citing the previous content marketing piece you posted. Are all your citations circular, to the same article that is encouraging people to put their extra cash in useless savings accounts? The vast majority of Americans keep their extra cash in a checking account for convenience, and less commonly a money market account, all of which is explicitly excluded from "savings" in that article. Savings accounts only profit the banks, people don't have a use for one these days.
Meanwhile, you ignore US Federal Reserve surveys, US BLS statistics, etc that are detailed, authoritative, and provide the basis for most economic modeling. Probably because they obviously and transparently contradict your assertion in considerable detail.
I don't think this survey says what they think it says.
"Methodology: This GOBankingRates.com survey posed the question, “How much money do you have saved in your savings account?” to 8,131 people among all 50 states and Washington, D.C. Responses were collected through a Google Consumer Survey conducted from Aug. 15, 2017, to Aug. 17, 2017, and responses are representative of the U.S. online population." [1]
This shows that a lot of people don't have saving accounts. Not that they don't have any savings. For example, they could keep their savings in a checking or money market account. Or as cash.
That is a much better line of questioning since it avoids the arguments about what is meant by savings. Also clicking through I found it avoids the followup argument of "what about credit cards"? To quote the whole thing: "47: The percentage of Americans who can’t pay for an unexpected $400 expense through savings or credit cards, without selling something or borrowing money, according to the Federal Reserve."
But there's still a problem in that the $400 is "pay immediately". The other study from the same article showed 50% of Americans could cope with a surprise $2000 bill that they had 30 days to pay, in 2009.
You aren't citing a "different metric". You are citing an unscientific internet poll by Bankrate.com, whose results were released as a PR announcement meant to encourage people to open savings accounts. The "no savings" means "no money in a savings account" by those who answer the poll. You know nothing about whether these people were even in the labor force, how old they were, what money they had in checking accounts or 401Ks or money market mutual funds, and whether they were a representative sample (N=hundreds). Because an internet poll is not a study, and a marketing campaign is not scientific data.
This is clickbait.
I am citing the gold-standard academic study of household finances -- the survey of consumer finances, and the gold standard study of income as determined by the Census. This is not a situation of "different metrics", this is a situation of bad data versus good data leading to bad conclusions versus accurate conclusions.
Please look to the Census and academic studies to form your worldview of the state of US household finances rather than Bankrate.com's marketing department.
That infamous bankrate.com "study" is misleading in similar ways; they define terms in a way no reasonable person would to support a desired conclusion. Same for "retirement savings" and a bunch of other financial topics where the terms are misleadingly defined to create a dramatic headline. These are all clickbait articles that have been debunked countless times, and any careful reading of the studies indicates why.
Start from the well-sourced fact that median American households have ~$1000 per month to spend without sacrificing anything, and work from there. This can't be true at the same time all of those breathless headlines about broke Americans is also true. Without fail, if you dig into the details, the headlines are grossly misleading. The percentage of Americans that truly have no capacity to deal with significant unplanned expenses -- per Federal Reserve studies -- is 10-15%. A not inconsiderable number of people but far less than implied by the clickbait.
Average Americans have extraordinary amounts of discretionary income compared to almost anywhere else in the world. Americans both have a low savings rate and they have large amounts of money available to save.
The analysis misses the crucial factor - access to credit.
A middle-class homeowner can easily borrow tens of thousands of dollars cheaply and easily via credit cards and overdrafts. With a good credit history, you don't need liquid savings to deal with a temporary cashflow problem; Low interest rates mean that it is economically rational to rely on credit in this way, rather than having capital under-utilised in instant access savings accounts.
Credit is vastly more expensive for the poor, especially the unbanked poor (who represent around 8% of the American population). Borrowing $1000 for a couple of months costs just a few dollars if you have a low-rate credit card, but hundreds if your only access to credit is through payday lending. Without the cushion of cheap credit, it is imperative to have a rainy-day fund.
The availability of peer support is also highly relevant; If you have affluent family and friends, then the consequences of cashflow problems are greatly diminished.
The author draws the conclusion that the middle-classes are financially insecure, but I think that the converse is true - they choose to spend to the limit of their income because they are highly financially secure and do not fear short-term cashflow problems.
Headlines that say "Fed survey shows 40 percent of adults still can’t cover a $400 emergency expense" are technically incorrect. A majority can cover the expense with either cash or credit.
But I think that misses the point.
Only 41.8% have enough cash on hand. That is, a majority of Americans are living paycheck-to-paycheck. They're not saving money or building wealth - they're surviving.
Maybe this is the norm in other countries. Maybe it's the historical norm. But it doesn't bode well for wage earners.
> what is the overlap between the set of people who check "just pay it out of checking/savings" (50%) and the set of people who check "charge it and pay off in full at the end of the month" (36%)?
The report plainly states:
> When faced with a hypothetical expense of only $400, 59 percent of adults in 2017 say they could easily cover it, using entirely cash, savings, or a credit card paid off at the next statement (referred to, altogether, as "cash or its equivalent") https://www.federalreserve.gov/publications/2018-economic-we...
The 4 in 10 comes from the very next paragraph of the report:
From this data, it is reasonable to conclude that "Four in 10 adults would not use 'cash, savings, or a credit card paid off at the next statement' to cover such an expense."
So called "cash buffer" problems are actually a separate problem for many people. For many americans, maintaining a cash buffer is an inappropriate strategy because of their revolving credit balances.
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