Poor personal finance is everywhere
If you heard that half of Americans have failing personal finances, would you be surprised? Your initial reaction may be to question the statistic. To tell the story, we have gathered over ten indicators from a variety of sources to help you reach your own conclusions.
Inadequate Emergency Savings
Why it’s important:
Emergency savings are key for covering the unexpected, such as paying rent after a layoff. Experts suggest you should have 3 - 6 months worth of expenses saved up.
Stats on saving:
78 percent of U.S. workers live paycheck to paycheck to make ends meet (Source: CareerBuilder, 2017)
40 percent [of Americans] cannot cover a $400 emergency expense, or would do so by borrowing or selling something (Source: US Federal Reserve, 2018)
23% of American have NOTHING in emergency savings, and an additional 22% of American have less than 3 months in emergency savings (Source: Bankrate, 2018)
Inadequate Use of Insurance
Why it’s important:
Many people find themselves facing an unpayable bill after an unforeseen event, like an illness, natural disaster, or accident. Insurance is key for covering “tail-end” risk and can mean the difference between life or death.
Stats on insurance:
8.8% of people, or 28.5 million, did not have health insurance at any point during the year. (Source: US Census, 2017)
Only 10 percent of Americans have flood insurance (often separate from home insurance) on the hurricane prone Carolina coasts (Source: Washington Post, 2018).
The Debt Hole
Why it’s important:
Without adequate emergency funds and proper insurance, many Americans are ill prepared for unexpected expenses. It is no surprise that some individuals can find themselves in spiraling debt with interest charges that pile up. While debt can be a tool for improving your situation (buying an education or house), even the best laid plans can turn bad.
Stats on debt:
71 percent of all workers say they're in debt...more than half of those in debt say they feel they will always be in debt. (source: careerBuilder, 2017)
12 million people in the US use payday loans annually, spending an average of $520 in interest to repeatedly borrow an average of $375 in credit (Source: Pew trust, 2013)
The average U.S. household with credit card debt has an estimated $6,9291 in revolving balances (balances that accrue interest). With an average APY of 16.46%, these households pay an average of $1,141 in interest over the course of a year (Source: Nerdwallet, 2018)
Not ready for retirement
Why it’s important:
We can’t work forever so we should be saving for retirement. Otherwise we risk not being able to pay for basic expenses when we are older.
Stats on retirement preparedness:
1 In 3 Americans have Less than $5,000 In retirement savings (Source: Northwestern Mutual, 2018)
38 percent of workers do not participate in a 401k plan, IRA or comparable retirement plan (source: CareerBuilder, 2017)
Lack of financial literacy
Why it’s important:
A basic understanding of financial terms and concepts can go a long way. Knowing that you should have an emergency fund is a great place to start. Furthermore, knowing your Ps from your Qs, or rather your fixed rate from your variable rate and other financial terms is important as you make financial decisions.
Stats on financial illiteracy:
74% of adults reported they were doing at least OK financially, while 40% cannot cover a $400 emergency expense (Source: US Federal Reserve, 2018)
63% of people surveyed failed the National Financial Capability Study (source: FINRA Investor Education Foundation, 2015).
58% of people surveyed responded that they did not compare credit cards when opening a new account (source: FINRA Investor Education Foundation, 2015)
Conclusion
If you think you fit into one of more of these statics you’re not alone. The good news is that you are now aware of your situation and there are many resources to help you get back on track. Here are some free ones that we recommend:
Guardian savings was founded to be a solution to the nation’s personal finance problem by teaching the next generation to be savvy spenders and savers. Our app helps your children learn money fundamentals, lets them apply their skills, and gives you numerous money coaching tools.
Curious what it means to be financially literate? We wrote a post.
Do you have a stat that you would like to share? Please comment below and include your source!