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The New Normal of Financial Vulnerability in America

Why so many are jittery despite the improving U.S. economy

By Richard Eisenberg

One reason the messages of Donald Trump (on the right) and Sen. Bernie Sanders (on the left) are resonating: the “new normal” of financial vulnerability in America.

That’s the phrase the Corporation for Enterprise Development (CFED) uses in its just-released 2016 Assets & Opportunity Scorecard and I think it’s pretty apt — particularly for low- and middle-income Americans.

“Issues of financial security haven’t been this big at any time in recent memory,” says David Newville, CFED’s director of government affairs. “Typically, you see Democratic candidates talking about it, but many Republicans are, too.”

As Christian Weller, senior fellow for the Center for American Progress and author of Retirement on the Rocks, said at a webinar I watched Thursday: “A lot of the energy and anger driving the campaign discussions is fueled by massive economic uncertainty today.” (For the record, both the Center for American Progress and CFED lean left.)

CFED’s report finds that despite the drop in the unemployment rate; the 8.2 million Americans who now have health insurance due to the Affordable Care Act and the rise in the percentage of Americans making credit payments on time (now, 79 percent do), millions of Americans are dealing with “ongoing financial vulnerability.”

Says Kasey Wiedrich, CFED’s director of applied research: “It doesn’t seem that the gains in the economy are changing the day-to-day lives of many Americans.” Millions live paycheck to paycheck “with no prospect of saving for a more prosperous future,” notes the CFED report. More evidence: The Pew Charitable Trusts’ Survey of American Family Finances recently said that 60 percent of U.S. households experienced a “financial shock” in the past 12 months.

Financial Insecurity: The Two H's

The primary reasons for so much financial insecurity seem to be due to the two H’s: Housing and Health.

CFED says that 51.8 percent of renters are “cost-burdened.” That means they spend more than a third of their income on housing.

What’s more, a lack of savings combined with steep home prices has sent the homeownership rate down for the eighth consecutive year, to 63.1 percent — a historic low. The high: 67.3 percent in 2006.

“The median home value is three times income, on average, but in states like California and Hawaii, the median home value is about seven times income,” says Wiedrich. “The cost of housing is also very high in Massachusetts, New York and Oregon. It’s high for a lot of folks.”

And homeownership, of course, can be a major source of wealth creation, as well as a kind of forced savings for retirement.

On the health care front, “just having health insurance doesn’t mean it’s affordable to go to the doctor,” Wiedrich notes. According to CFED, 14 percent of adults said there was a time in the past year they needed to see a doctor but couldn’t because of cost; one in four Latino adults and one in five African-American adults were in this position.

CFED’s report noted that financial insecurity is particularly problematic for African-Americans and Latinos, overall. The median net worth of white households is nearly $111,000, compared to $9,000 for Latino households and just over $7,000 for African-Americans.

A Racial Divide in Financial Security

“This year, we added data related to race in our scorecard and we really do see a significant divide,” says Wiedrich. Families of color, CFED found, are 2.1 times more likely to live below the federal poverty level and 1.7 times more likely to lack liquid savings. They’re also “significantly more likely to have subprime credit scores” and have a far lower homeownership rate than whites (45 percent vs. 71 percent).

To better understand the racial disparities and offer proposals to address them, CFED recently launched the Racial Wealth Divide Initiative with the support of JP Morgan Chase. It’s currently working with five local African-American organizations on the African American Asset-Building Project.

The Male/Female Divide


One other financial disparity CFED noted: a huge gap between the value of female-owned and male-owned businesses in America.

The female-owned ones are worth only a third the value of the average male-owned businesses — $239,486 to $726,141.

“That could be due to the type of businesses women tend to open and it may also be because women have less access to capital than men,” says Wiedrich. “That limits their opportunities to expand.”

Policies to Address Financial Vulnerability

The experts at CFED and Weller applaud the Obama administration’s myRA program (“a fantastic idea,” says CFED’s Newville) and the recent initiatives in Illinois, California and New Jersey to broaden retirement-savings coverage. (Me, too.)

But they have a few other ideas to help reduce the financial vulnerability for Americans with the lowest incomes and smallest amount of wealth.

Specifically, they’d like to see federal tax breaks for savings targeted towards lower-income people. “Give the most help to people who need the most help,” says Weller. CFED calls the tax code “upside down,” saying that tying deductions to incomes means the biggest breaks go to the wealthiest.

The Saver’s Credit, Weller says, should be “refundable” — meaning that poor Americans who don’t earn enough to owe taxes should be allowed to claim the credit and automatically put the money into an IRA. “That would be a big step,” he says.

Weller also believes more Americans would save for retirement if the U.S. retirement savings system were simpler. “We have 12 forms of retirement savings accounts,” he notes. “That stands in the way of people doing the right thing and saving for the future.” Weller proposes stripping the number down to two: employer-based accounts and non-employer based accounts.

A Plea to the Presidential Candidates

As for the 2016 election, Newville hopes the presidential candidates will begin talking more about ways to shore up retirement security.

“This is an issue we haven’t heard as much about as in the past. Think back to 2000 when Al Gore talked about the Social Security lockbox. We’re hearing less about the retirement crisis because the focus has been on the public’s trepidations about the current state of the economy.”

Photograph of Richard Eisenberg
Richard Eisenberg is the former Senior Web Editor of the Money & Security and Work & Purpose channels of Next Avenue and former Managing Editor for the site. He is the author of "How to Avoid a Mid-Life Financial Crisis" and has been a personal finance editor at Money, Yahoo, Good Housekeeping, and CBS MoneyWatch. Read More
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