A fascinating study entitled “Financially Fragile Households” was released recently by three researchers from George Washington, Princeton and Oxford Universities. The gist of the trio’s (Lusardi, Schneider and Tufano) findings is that about 25 percent of American families say that in an emergency, they definitely could not come up with $2,000 in 30 days if required to do so.



About half of those surveyed say they probably could not summon such a sum, even utilizing sources like savings, investment accounts, and work-related retirement accounts. Most would have to absorb credit card debt, access home equity lines of credit or take loans from family or friends to meet such an unexpected obligation.



If the economy is indeed gaining traction, and unemployment numbers are falling, how then can so many American families be living so close to financial implosion? 



For one, inflation is incendiary. For many Americans, health care insurance costs and achieving a viable retirement are becoming unaffordable luxuries. College tuition costs have skyrocketed. A major car repair, the need for a new roof, or simply the cost of purchasing food and gas, can sideswipe the precarious financial balance of many American families.



“Real income” in America, or the amount of goods and services that a family can purchase today after inflation versus what they could purchase 20 years ago, has steadily declined. Wages simply have not kept pace with rising prices. 



“The financial crisis and its aftermath have taken a significant toll on American households, but many of the country’s economic problems predate the crisis,” says The Economist. “New data on income and poverty released by the Census Bureau reveal a picture of sustained stagnation in incomes for most American households. From the richest to the poorest, inflation-adjusted incomes were lower in 2010 than they were a decade ago.  Stagnation is a relatively new phenomenon for the rich, but not for the rest.”



“In 2010, the typical American household earned an inflation-adjusted income of $49,445,” writes The Economist, “scarcely different from that in 1989 and a fall of 2.3 percent since 2009.  Current incomes are at roughly the level of the late 1970’s for those near the bottom of the income spectrum … From a real income perspective, the American economy has already experienced a lost decade, but for the median household the picture is one of a generation of stagnation.”



The flip side of this research is, of course, that about half of American households say that they indeed can come up with $2,000 in emergency funds on short notice, and there’s a modicum of reassurance there. These families earn more, obviously, and for them, bill paying is a monthly process, not an impossible task.



But many of these families learned the art of financial conservation and saving, even when they weren’t enjoying larger incomes. And they often wisely pass this habit down to their children. 



For many in America, saving has become a lost art, especially when we contrast our lifestyles with cultures from around the globe. Many foreign countries survived the toxic mortgage meltdown with aplomb, primarily because families save such a large portion of the cost of a new house before purchasing. In fact, many American banking executives were dispatched to India following the 2008 U.S. financial meltdown to learn how banks and markets there had avoided the problems that we encountered.



Many returned with a new appreciation for the culture of saving that exists in other countries.



It’s old fashioned, and it’s not very exciting, but saving still works for those with the willpower to accomplish it. Say you’re planning a home improvement project a year from now, and you estimate that the total cost will run approximately $6,000. Setting aside $500 monthly for a year in advance and then paying cash for the project upon completion is not only fiscally prudent, it provides the saver with a sense of satisfaction.



Many Americans would simply write a check to fund such a project, and so saving up for the project’s consummation is unnecessary. But it’s probably safe to say that at one time these same people learned to save before they didn’t have to anymore.



Margaret R. McDowell, a syndicated economic columnist, chartered financial consultant and accredited investment fiduciary, is the founder of Arbor Wealth Management, LLC, (850-608-6121~www.arborwealth.net), a fee-only registered investment advisory firm located near Sandestin.