Most Americans Remain Financially Insecure

And that is according to none other than JPMorgan Chase, whose research division commissioned a study that examined the finances of 100,000 of is 27 million accounts during 2013 and 2014. As Al Jazeera reports on the results:

It found that almost all the customers in the sample experienced changes in income and spending of 5 percent or more a month — not a tremendous fluctuation by any measure. But over the course of the year, 26 percent experienced income changes of 30 percent or more —10 percent suffered declines, while 16 enjoyed increases.

It’s not surprising that more people experienced an increase than a decline: The economy was expanding during the years studied, and added 5.5 million jobs. But the fact that so many households also took a large hit to their incomes during supposedly good times tells us that the so-called recovery is an anemic one, and that many Americans won’t be surprised by the Commerce Department’s report that the U.S. economy actually contracted 0.7 percent in the first quarter of 2015.

Even more surprising is that there was little variation in income and spending volatility by income level. The richest fifth of account holders actually showed more variation than poorer ones.

Granted, this study was conducted by just one bank (albeit the largest one in the country) and measured a relative fraction of its users (who in turn are a minority of the total Americans with a bank account). But it is representative of an overall trend observed in broader studies: most people in the U.S. are just one emergency away from going broke, and indeed medical bills remain the single biggest cause of bankruptcy among most individuals.

But as JPMorgan’s study further showed, it is not just the extreme cases that can tip an individual or family into hardship. The growing self-awareness of financial precarity, backed by the fear of poverty for which there is little to nothing to fall back on, means many people are overly frugal (and who could blame them?):

Income and consumption changes didn’t move in tandem, either. Just 28 percent of the survey subjects (or “responders”) spent more money when they had more, and less when they had less. These responders were more likely than the general population to be in the bottom quintile, to have maxed out their credit cards and to be on a fixed income, usually social security or pensions.

A third of the sample were labeled “sticky optimists”, meaning that increases in their consumption exceeded real income increases by 10 percentage points or more. Their consumption increased even when their income fell. These optimists tended to be higher earners, though their aggressive consumption can’t be sustainable over the longer term for those who aren’t centimillionaires with no concern for their heirs.

The largest share of account holders, 39 percent, were “sticky pessimists”: When their income rose, their spending didn’t keep pace with their raises, and they cut back when their income dropped. Many analysts have been wondering why retail spending has been so weak despite improvements in the job market. This sticky pessimism could be an explanation — memories of the Great Recession are still alive, making people act more prudently than the overspending American of cliche.

Indeed, Americans have good reason to reign in on consumption levels even when finances seem secure — because ultimately, socioeconomic security and stability remain elusive in 21st century economy:

The final major finding of the study was that the typical household in the sample (which, by the way, is somewhat better off than the national average – in part because the very poor don’t have bank accounts with JPMorgan Chase) simply did not have the savings cushion necessary to weather the income and spending volatility. The bank estimates that a middle-income household, with a combined income around $50,000, should have about $4,800 in liquid assets on hand to cope with normal monthly ups and downs — but the survey found the average family had only about $3,000. The poorest fifth who live on $23,300 or less per year, should have $1,600 on hand; they have $600. Even the richest fifth, who make around $125,000, falls a little short — they have $13,500 instead of the needed $13,800. And the richer you are, the more you spend.

In other words, almost all Americans, save for the very richest, are just a few paychecks away from penury. And the consequences of such a precarious lifestyle can’t be fully understood through JP Morgan’s account data alone. Even the report says in its conclusion that “financial insecurity and scarcity exact a mental toll.”

While JPMorgan, among many others, unsurprisingly sees the solution in better financial planning and budgeting, the fact is that this will not help most people. The majority of Americans are in dire straits financially for the simple reason that they do not make as much money as they used to. Average real wages and salaries, and by extension real average incomes, remain stagnant, at best. The costs of shelter (both rented and owned), healthcare, and education continue to rise. People simply do not have the resources to save, and there is only so much that can be cut. One would have to sacrifice the basic prerequisites for a decent quality of life — an occasional vacation or trip to the movies — just to get by. And in the world’s wealthiest and most materially rich nation, one whose companies and elites continue to enjoy skyrocketing profits, that is a patently unfair proposition.

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