Financial Fragility in the US: Evidence and Implications

This study, funded by the National Endowment for Financial Education, analyzes financial fragility measures across two different datasets – the 2015 National Financial Capability Study (NFCS) and the 2015 Survey of Household Economics and Decisionmaking (SHED) – and conducts focus groups to gain additional insights about people’s capacity to cope with unexpected expenses.

Too many Americans are living on the edge of financial fragility, the inability to cope with unexpected expenses. No group is immune: Financial fragility affects all ages, income levels, genders and education levels. Overall, 36 percent of working adults in the United States could not cover the cost of a midsize budget shock, such as a car or house repair, a medical bill or a legal expense, within a month.

Financial fragility is not only linked to having too few assets, but also to too much debt and/or low levels of financial literacy. While this vulnerability is more prevalent among women and those with low income or low education, this study shows that a broad cross-section off the American population is at risk, including middle-aged and middle-income families.

The inability to deal with budget shocks matters. For some families, something as small as traffic ticket can create a short-term crisis that can snowball for several months. In the long term, financially fragile families are less likely to plan for retirement, jeopardizing their future stability.

This study finds that financial literacy makes a big difference to financial fragility. Increasing American’s financial literacy can improve – and perhaps prevent – many situations of financial fragility. Planning ahead and building precautionary savings can lower the need for using credit, borrowing from friends and family or working multiple jobs, improving not only the household’s financial situation, but its quality of life as well.

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