Despite the booming economy and low unemployment, only 29% of Americans consider themselves financially healthy.
That means the vast majority of U.S. individuals aren’t prepared if and when another recession sets in.
“If you look at what comprises financial health it’s things like more income coming in than going out, being able to pay your bills on time and having savings in the bank,” said Jennifer Tescher, founder and CEO of the Financial Health Network, the research firm focused on financial health. “Despite the booming economy, Americans are like ducks swimming in the water. It looks placid and smooth at the top but under the surface, their little feet are churning and churning.”
The Financial Health Network partnered with Flourish, the venture capital firm that invests in fintechs, MetLife Foundation and AARP to get a sense of how Americans are feeling financially. In its second year, the U.S. Financial Health Pulse Report measures respondents against eight indicators to determine if they are financially healthy, financially coping, or financially vulnerable.
They found 43 million Americans or 17% are struggling with most if not all aspects of their financial lives. Meanwhile, 135 million or 54% are struggling with some aspect of their financial lives and 73 million or 29% of people are spending, saving, borrowing and planning. All told more than 70% are having some type of financial problem.
Through the survey, the groups found that while the overall financial health of Americans was unchanged from last year, the lack of financial well being by the majority of Americans is something to be worried about. “The relative instability of the overall financial health of Americans doesn’t bode well in an economy that looks headed for a downturn,” said Tescher.
Nobody knows for sure when a slowdown will occur, but it’s clear from this survey Americans aren’t prepared. According to the survey, people aren’t saving as much this year, with 12% of respondents saving less than one week of living expenses. That’s up 1.4 percentage points from last year. More than half of respondents between the ages of 26 and 49 don’t have enough set aside to cover living expenses for three months.
People are also spending more than they’re earning. Of those making $30,000 to $59,9999, 20% said they fell in that category. A similar percentage making between $60,000 and $99,999 indicated the same.
Even more telling is the significant shifts in finances Americans faced during the year. Slightly more than half experienced big changes in their financial health compared to last year.
The two biggest drivers of the shifts were changes in employment status and health events. “Twenty-four percent of people’s financial health changed up or down year over year,” said Tescher.
“It was enough to either go from being healthy to coping or coping to healthy.” It’s not all bad news. People with household incomes under $30,000 have been managing their debt better year-over-year.
The Financial Health Network and its partners are aiming to delve into the financial lives of Americans to arm financial service providers, innovators, policymakers and researchers with data they can use to improve the financial lives of consumers.
As it stands, Tescher thinks the approach to financial advice needs to change to reflect the realities for millions of Americans. Instead of telling people to contribute to a 401 (K), pay their bills on time and save x amount each month, the advice should recognize the volatility of it all.
“There’s such a disconnect today between the overall health of the economy as measured by the GDP and the real finances of Americans. It’s critical to think about additional metrics when thinking about the broader health of society,” she said.