The Precarious State of Family Balance Sheets
The Pew Charitable Trusts, January 29, 2015
- The majority of American households (55 percent) are savings-limited, meaning they can replace less than one month of their income through liquid savings.
- Most families face financial strain across all balance sheet elements: income, expenditures, and wealth. In addition to being savings-limited, households face other financial challenges; just under half of families are “income-constrained,” reporting household spending greater than or equal to their income; and 8 percent are “debt-challenged,” with payments equal to 41 percent or more of their gross monthly income. Fully 70 percent of households face at least one of these problems, with many confronting two or even all three.
Previous Pew research has shown that family finances are a critical component of future economic mobility, not just for individuals but also for their children. However many families, even those with relatively high incomes, are walking a financial tightrope, and have little, if any, cushion to absorb an unexpected financial emergency. What’s more, this is not a new phenomenon. While the most recent recession shined a spotlight on the fragility of family balance sheets, the downturn alone did not cause households’ financial insecurity; many of the indicators explored here have been stable for the past 30 years.
No single solution exists for stabilizing family balance sheets. Putting families on solid financial footing and the road to upward economic mobility will require a selection of thoughtful and strategic policy interventions. As policymakers strive to increase opportunity for all Americans, policies and programs that support asset accumulation will be key. These efforts will also require careful design and rigorous evaluation to ensure that they are effective in helping families improve all elements of their balance sheets.
By Don McCanne, MD
Far too many American families simply do not have the income or assets to meet unexpected expenses such as health care, especially now that insurers are shifting more of the costs to patients. This Pew report recommends “thoughtful and strategic policy interventions,” carefully designed and rigorously evaluated to be sure they are effective. We already have a carefully designed and rigorously evaluated proposal for health care – a single payer national health program, aka an improved and expanded Medicare for all. We merely have to enact and implement it.