ARBOR WEALTH: The lost art of saving in America

Published: Thursday, April 18, 2013 at 02:46 PM.

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.”

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