Many families are unprepared to deal with financial emergencies.
A Pew Charitable Trusts analysis found that more than 8 in 10 Americans are concerned about a lack of savings, 71 percent fear they don’t have enough money to cover their expenses, and another 7 in 10 think they won’t have enough money for retirement.
As President Barack Obama prepares to deliver the State of the Union address, now is a good time for all policymakers to reflect on the state of Americans’ financial insecurity. Five years after the Great Recession, families still feel financially vulnerable. Among those who said they worry about their finances, more than 8 in 10 are concerned about a lack of savings, 71 percent fear they don’t have enough money to cover their expenses, and another 7 in 10 think they won’t have enough money for retirement.
But Americans face more than psychological uncertainties: These concerns are grounded in harsh household realities. Earnings have grown little for the typical worker, and income is often volatile,2 with more than half of households reporting that their income or expenses vary from month to month. Because of this unpredictability, it is difficult for households to plan and save.
Not surprisingly, then, many families are unprepared to deal with financial emergencies. Over the course of a year, most families experience financial shocks—expenses or lost income they do not anticipate, such as car or house repairs, a pay cut, or an illness or injury—that can cause significant strain. Unfortunately, these events are often costly: The typical household spent $2,000, or about half a month’s income, on its most expensive financial shock.
