Mendeley
JSTOR
GPO
The World Bank
Inequality, Personal Finance
Financially Fragile Households: Evidence and Implications
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Research Findings
Economists have several methods for measuring financial stability within a society. One such measure is “financial fragility,” or a household’s ability to access emergency funds from any source in a moment of crisis. It is a stark measure of assessment, for sure, but it is revealing of the level of vulnerability — and potential anxiety — with which many workers and their families presently cope.
A 2011 paper published by the National Bureau of Economic Research and The Brookings Institution, “Financially Fragile Households: Evidence and Implications” (PDF), used data from the 2009 TNS Global Economic Crisis survey to examine households’ capacity to come up with $2,000 in 30 days.
The study’s findings include:
- Of the 2,100 U.S. survey respondents, 24.9% reported being “certainly able” to come up with $2,000 in 30 days; 25.1% were “probably able,” 22.2% were “probably unable,” and 27.9% were “certainly unable.”
- Among families with incomes of $50,000 to $60,000, about one in five said they would be “certainly able” to come up with such funds. For those wage earners with a high school education or lower, roughly one in ten reported being “certainly able.”
- In lower-income families, the inability to cope was most pronounced; however, people from 25% of U.S. households making between $100,000 and $150,000 also claimed not to be confident of the ability to raise $2,000 in a month.
- Almost exactly 50% of American respondents reported being probably or certainly unable to raise the funds. This figure was consistent with both German and U.K. respondents. However, in Canada only 28% of respondents felt unable, and Italy saw only 20% of its people reporting an inability to raise an equivalent sum.
The study’s authors also discuss the practical ways families deal with such household financial shocks, noting that many must rely on non-standard resources: “While savings is used most often, relying on family and friends, using formal and alternative credit, increasing work hours, and selling items are also used frequently to deal with emergencies, especially for some subgroups.”
Tags: consumer affairs, financial crisis, poverty
Teaching Notes
Analysis assignments
Read the issue-related New York Times article "Recession Raises Poverty Rate to a 15-Year High."
- If you were to rewrite the article based on knowledge of the study, what key changes would you make?
Read the full National Bureau of Economic Research study "Financially Fragile Households: Evidence and Implications" (PDF).
- Summarize the study in fewer than 40 words.
- Express the study's key term(s) in language a lay audience can understand.
- Evaluate the study's limitations. (For example: Do the results conflict with those of other reliable studies? Are there weaknesses in the study's data or research design?)
Newswriting assignments
- Write a lead (or headline or nut graph) based on the study.
- Spend 60 minutes exploring the issue by accessing sources of information other than the study. Write a lead (or headline or nut graph) based on the study but informed by the new information. Does the new information significantly change what one would write based on the study alone?
- Interview two sources with a stake in or knowledge of the issue. Be prepared to provide them with a short summary of the study in order to get their response to it. Write a 400-word article about the study incorporating material from the interviews.
- Spend additional time exploring the issue and then write a 1,200-word background article, focusing on major aspects of the issue.
3 comments
Verna Darby
[...] given the fact that in an emergency half of American households probably couldn’t come up with $2,000 within 30 days, I don’t think it’s a small deal that we were able to painlessly navigate [...]
magazine online…
[...]Financially Fragile Households: Evidence and Implications – Journalist's Resource: Research for Reporting, from Harvard Shorenstein Center[...]…
This report hits the nail on the head! It is not just families who have this problem, many single young adults are overwhelmed by debt. Bad financial decisions made before or after reaching adulthood have plagued so many. For me it’s personal: my husband and I worked hard to get good credit and despite some ups and downs have managed to be in good standing with our finances.
Unfortunately our sons have not been so lucky. One is doing okay but still needs to get that cushion for emergencies. His brothers are struggling everyday despite having intelligence and good work ethics. Student loans defaulted on, evictions, car repossessions along with calls from other “random” creditors are making it difficult for them and us to live without stress. One was under so much pressure that he had to leave a good paying job because of mental health issues. His brother has been conned by one employer (nationally known) filing for bankruptcy and another just skipping town with his tools and paycheck. Both of these guys have worked multiple jobs at once trying to get out of debt. And while there are those who would say “they brought it on themselves”, the point here is not that they made bad decisions or were conned, or even that they had bad luck; the point is they haven’t the money to put into savings etc.for a cushion. They hardly have enough money to get to work, pay bills and buy food; much less save.
The point is that something needs to be done to prevent situations such as this from arising. So what can they do? Sure it’s easy to say what we (parents) and they “should have” done. Please tell us what we can do! Financial aid is no good unless it comes with a plan of action. Like many parents, my husband and I have helped out on numerous occasions (we understand that is a “no no”.) These are not (habitually) irresponsible people. They just are stuck in an unrelenting cycle of frustration and anxiety. This is an epidemic and I am afraid there is no panacea for my sons.