Expert Commentary

Financially fragile households: Evidence and implications

2011 study for the National Bureau of Economic Research on the vulnerability of American households to financial emergencies.

Financially-fragile household (iStock)

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

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