Families Unable to Cope with Financial Crisis

Families don’t have adequate savings to make it through a financial crisis of any size during our Obama “recovery.”

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Families don’t have savings any more. This is a direct result of government policy going back before Obama but getting worse under his rule. As the Federal Reserve has lowered interest rates it has made savings less rewarding and speculation more tempting.

That is a major reason why we had the housing bubble. People were satisfied with the “net worth” of U.S. families because they had valuable homes even though they didn’t have much money in the bank. Savings accounts got almost no interest. Other than security risk, one might as well stuff cash in a mattress as put it in the bank. So the homes seemed like a better “investment” than savings and the constant home price inflation was a reason why people couldn’t afford savings.

[See also, “The Obama Recovery Increases Wealth Gap.”]

But those home values could disappear overnight.

When a financial crisis hits, you need savings. And U.S. families still don’t have much. CNN Money reports, “Middle class families are on financial thin ice.”

The typical middle-class American family is not prepared for a major financial shock.

This family could only replace 21 days of income with readily accessible funds, leaving it on financial thin ice in case of an emergency, according to a new report from Pew’s financial security and mobility project. Those funds include cash on hand or in savings and checking accounts.

Even if the family liquidated all its retirement savings and investments, it could only replace 119 days of income.

The lowest-income families are even more strapped, with only 9 days of ready cash. But even the richest Americans can only dig up 52 days in an emergency.

This not only means these families will not be able to deal with a financial emergency like a job loss or a sudden illness, but it means that we are getting near to another national financial crisis. Our entire economy is centered around unending waves of consumer spending. Any report of less shopping for Christmas is treated like a national emergency.

People this close to the edge desperately need to cut spending wherever they can. Even if they don’t do so, using credit cards will eventually catch up with them and the spending will plummet to be replaced by foreclosures.

The inability to survive a financial crisis means we all have another one coming.