A national examination of how many Americans are living paycheck to paycheck makes it clear why jobs were key in the most recent election. While there have been stock market and consumer confidence jumps in the wake of Donald Trump’s inauguration, national figures still show that most Americans struggle to get by financially.
No state exemplifies this financial insecurity more so than California. Ironically, the Golden State is home to 124 billionaires, with Silicon Valley largely to thank for that. The state with the second highest number of billionaire residents, New York, has 93. No other state is close.
California is the state-posterchild for criticism of America’s supposed problem with wealth inequality, a statistic most economists know to be irrelevant to a nation’s financial health. Yet, the same state with 124 billionaires must face this startling reality: 37 percent of its population would not be able to survive at the poverty level for three weeks should they be laid off or be faced with a significant financial burden.
As much as I would love to pile on California- exorbitant housing prices are a major contributor to low savings– a populace not saving their money is a national problem. Findings in the 2017 Prosperity Now ‘On Track or Left Behind’ report show that America, by many metrics, is largely comprised of families living paycheck-to-paycheck, saving little to nothing as a result.
Again, I could rail on liberal policies and artificial economic measures being employed during the Obama years which exacerbated these problems. Instead, the facts will speak for themselves.
Over the past year, a national average of 43.7% of American households set aside no savings for emergencies. In California, the percentage was only slightly higher at 46%.
A household that is liquid asset poor means that they would struggle to survive, even for a matter of weeks, at the poverty level. This amount is designated as $6,150 per month to support a family of four. This is a conservative estimate.
Yet, the lower and low-middle class factions of the population remain dangerously close to this financial red zone, with 71.4% of the lowest income quartile and 52.4% of the second-lowest quartile qualifying as liquid asset poor.
Unemployment is low, but quality jobs are scarce for the working class, which also helps to explain why 1 in 5 households experience significant fluctuation in monthly income. To make matters worse, employers have decreasingly offered health insurance to their employees- a 10% decrease over that period- that can be primarily attributed to Obamacare-related decision making.
Paying out of pocket for healthcare while on a tenuous, fluctuating salary with little job security will ensure that the savings account remains barren.
Still, the revelation that nearly half of the American population saved nothing, and that much of the population is a few paychecks away from destitution, is startling. It is the sort of metric that makes plainly clear just how valuable each and every quality job is to the maintenance of the American economy.
At this moment, the American financial situation is a house of cards with many players remaining a serious disease or unexpected firing away from complete financial ruin.
Housing costs, particularly in states such as California and New York, account for much of the income and savings drain.
Lars Pener, assistant Professor at USC’s School of Business, crystallized how this problem is the primary culprit for California’s nation-leading percentage of financially insecure households:
“The cost of housing in California is exorbitant,” he said. “That’s a big part of the problem. People pay a disproportionate amount of their income toward housing.”
This exorbitant cost of living in such states has bred statistics such as this:
“The report finds that nearly 20 million U.S. households (16.9 percent of the total) have zero or negative net worth. That means they owe more than they own.”
Owing more than one owns is never a recipe for happiness, and it certainly prevents saving. Paying bills and existing debts comes before saving, and paying more than one should for housing means that these debts will not be alleviated soon, if ever.
Warning: political commentary ahead.
States such as these would be wise to incorporate more income tax credits. Liberal havens such as California have increased the burden on its citizens by spending-heavy policies, and an aversion to tax credits. These tax-happy states leave little breathing room in its citizens’ bank accounts to save at the end of each month, and exemptions are a rarity.
America’s population is, by and large, living in financial instability. Families often don’t realize or understand how close they are to being on the streets until it is too late. Hopefully, reports such as the 2017 Prosperity Now accounting will help alert legislatures and individuals to the need for saving, and how quickly one additional financial burden can throw a person or family into complete disarray.