Study finds few have enough savings to get through emergencies
Cleveland Plain Dealer - January 31, 2012
More than a quarter of Americans have little or no savings to help them survive an emergency that leads to a three-month loss of income, according to a new report on the health of Americans’ finances.
And that’s only if they can sell their homes or cars to get fast cash.
The number jumps to 44 percent when researchers exclude assets like homes, businesses and cars that could be sold to raise cash, according to the Washington-based nonprofit Corporation for Enterprise Development, which got an assist from Ohio Policy Matters.
In other words, lots of us are asset poor, even if our incomes may look OK on paper.
The report is an effort to go beyond the poverty figures released annually by the U.S. Census and take a deeper look at Americans’ financial security, according to Jennifer Brooks, one of the authors.
To create its state rankings and recommendations, the group compiled publicly available data and supplemented it with information purchased from private sources, like credit bureaus. As it looked at the data, it found:
• More than half of consumers have subprime credit scores.
• One in five jobs is low-wage.
• More than half of employers don’t offer healthcare.
• Just over half of American workers either don’t have or don’t participate in retirement plans.
“Ohio is doing better than many other states,” Brooks said. The state has policies – including encouraging saving for college, lowering barriers for mid-income unemployed to receive assistance, barring car-title loans and supporting microenterprise — that push it ahead of states like Nevada that were similarly slammed by the foreclosure crisis, she said.
But although the state has great architecture in place to help residents, it can do a better job, notes David Rothstein of Ohio Policy Matters.
For example, he said, Ohio requires financial literacy in schools, but “because that’s an unfunded mandate, some schools do it, some don’t.”
Similarly, the report gives the state props for having a payday loan law on the books that caps loan rates at 28 percent. It doesn’t, however, take into account loopholes that allow payday stores to continue to lend at triple-digit interest rates.
The Corporation for Enterprise Development recommends a range of policy changes states could make that could help consumers build savings, ranging from strengthening financial literacy in schools to establishing the state equivalent of the Earned Income Tax Credit.
It also recommends tweaking the federal Saver’s Credit. The tax credit was created to help low- to moderate-income consumers save for retirement, Brooks said, but it could be more effective if it was refundable and easier to use.
More on the study here.