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BPEA Article

Financially Fragile Households: Evidence and Implications

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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.


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