Financially Fragile Households: Evidence and Implications [with Comments and Discussion]

We examine households' financial fragility by looking at their capacity to come up with $2,000 in 30 days. Using data from the 2009 TNS Global Economic Crisis Study, we document that approximately one-quarter of U.S. respondents are certain they could not come up with that sum. If we include respondents who report being probably unable to do so, nearly half of respondents are financially fragile. Although financial fragility is more severe among low-income households, a sizable fraction of seemingly middle-class Americans are also at risk. Respondents with low educational attainment and no financial education, families with children, those who have suffered large wealth losses, and the unemployed are also more likely than others to report being unable to cope with a financial shock. Households' own savings are the resource used most often to deal with shocks, but resources of family and friends, formal and alternative credit, increased work hours, and sale of possessions are also used frequently, especially among some subgroups. These results indicate the need to look beyond precautionary savings to understand how families cope. We also find evidence suggestive of a "pecking order" of coping methods, with savings first in line. Comparing financial fragility and methods of coping among the United States and seven other industrialized countries, we find differences in coping ability but also general evidence of a consistent ordering of methods.