Wait. That’s our savings balance?
The Great Recession may be officially over, but American families’ finances have not recovered.
The majority of American households (70%) face “financial strains” on income, expenditure and/or wealth, while 55% of families are “savings-limited,” meaning they can replace less than one month of their income through liquid savings, according to “The Precarious State of Family Finances,” (pdf) a report released Thursday by The Pew Charitable Trusts, an independent non-profit group in Philadelphia. And while employment earnings grew 22% for the typical worker between 1979 and 1999, it’s changed little in the past decade, and between 2010 and 2013 stock ownership fell for all but the top 10% of earners.
“Our analysis finds that many American families, even those with relatively high incomes, are walking a financial tightrope,” says Erin Currier, director of Pew’s financial security and mobility project. “Many have little if any cushion to absorb an unexpected financial setback. It’s a precarious state that threatens not just financial security, but upward mobility.” Despite household spending falling back to levels not seen since 1990, fewer than half of American families still report being “income-constrained,” which means they reported household spending greater than or equal to their monthly income.
Debt is also a growing problem. Some 8% of households are “debt-challenged,” facing monthly payments equal to 41% or more of their gross monthly income, Pew found. And the percentage of households with problematic debt levels — typically measured as greater than 40% of their gross monthly income — hit 9.2% in 2013 for households headed by people 55 or older, up from 8.5% in 2010, according to a separate report Wednesday from the non-partisan Employee Benefit Research Institute. Their debt levels reached 65.4% of gross monthly income in 2013, up from 63% in 2010 and 54% two decades ago.
And many baby boomers are feeling the pressure of large mortgage repayments. Housing debt drove the change in the level of debt payments between 2010 and 2013, while the share of non-housing or consumer debt-payment of income held stable, says Craig Copeland, author of the report, “Debt of the Elderly and Near Elderly, 1992-2013” (pdf) and senior research associate at the EBRI. “The debt levels among those with housing debt have obvious and serious implications for the future retirement security of these Americans,” he says. Debt levels drop significantly for senior citizens who bought their homes before the housing boom.
Aside from the double-edged sword of stagnant wages and rising debt levels for many American families, the U.S. economy shows signs of improvement in both employment levels and house values. Unemployment fell to 5.6% in December from 6.7% a year earlier and — for those who held on to their stock before 2008 — the stock market has exceeded pre-recession highs. Only 8% of borrowers have homes that are currently underwater, down from a peak of 35%, or 18 million homes, 2011, according to Black Knight Financial Services in Jacksonville, Fla., which tracks mortgage performance.