Financial Fragility: 50% of American Consumers Say They Could Not Come Up With $2,000 in 30 Days

When 50% of Americans polled tell you they would have trouble raising

$2,000 in thirty days, it raises serious questions about the stability of the US economy. Why was that number chosen? Because it is the approximate amount frequently required for emergency auto repairs or a short-term health crisis. So this it not some random assignment. It represents the real changes that actual people face.

Questions about the wealth gap or the winner-take-all society seem almost beside the point. Those issues have been raised for years but have produced no discernible movement in political attitudes that might drive changes in tax policy or increases in social welfare programs. However, the fact that this fragility reduces the purchasing power driving American corporations and therefore threatens corporate sustainability is worth considering. What is to become of the nation when the baby boomers among that group can no longer work? How can American corporations compete when the living standards of their core consumers are declining? Who will employ people educated in schools that can no longer afford to purchase the tools needed to teach students the skills required by the global economy? Is the ascendant budget cutting mentality the functional equivalent of the Smoot-Hawley Tarriff that ushered in the Great Depression? It is time to ask serious questions about more than just the national deficit. JL

Sean Silverthorne comments in BNet:

"The consumers you depend on to buy your products and services are in an extremely fragile economic state, with almost half saying they probably couldn’t come up with $2,000 in 30 days.

A new study published by the National Bureau of Economic Research paints an exceedingly gloomy portrait of the financial stress suffered by American families. Respondents were asked to answer a simple but telling question: Could you come up with $2,000 in 30 days to pay for an emergency?
The lowlights:

24.9% of respondents reported being certainly able to raise $2,000.
25.1% probably able.
22.2% probably unable.
27.9% certainly unable.

Going down a level, households with the most vulnerability were those, as you might expect, with low income or large income losses, low education levels and families with children. But the biggest surprise may be the large numbers of middle class citizens who lump themselves in the financially fragile category, “reflecting either a substantially weaker financial position than one would expect, or a very high level of anxiety or pessimism. Both are important in terms of behavior and for public policy,” according to the report.

These results are stunning. When Harvard Business School professor Peter Tufano, one of the authors of the report, related the results to more than a hundred of his colleagues at a recent seminar — a polished crowd that tends not to surprise easily — a collective gasp filled the room.

Why did the researchers choose $2,000? The amount reflects “the order of magnitude of the cost of an unanticipated major car repair, a large copayment on a medical expense, legal expenses, or a home repair.”

The research was done by Annamaria Lusardi of the George Washington School of Business, Daniel J. Schneider of Princeton University and Harvard’s Tufano. Although offering no policy recommendations other than citing the need for more research, the group did suggest some possible steps to be considered:

1.Government support in the form of tax and regulatory policies that support long-term asset building.
2.Help from financial institutions in terms of new products that facilitate emergency support.
3.More academic studies on how consumers cope with financial surprises. For example, do they depend on family support, sale of assets or additional borrowing to get by? What is the state of family financial literacy, and how can that be improved?