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No Cushion

posted by Angie Littwin

This past weekend The Washington Post began an excellent series on the financial issues facing low-income workers.  The first installment is based on a poll of 1,350 randomly-selected people who made $27,000 or less in 2007.  According to the Post, this covers approximately 40 percent of the American work force. 

The results will not come as a surprise to many Credit Slips readers, but they are worth examining because they document the fragility of so many families’ finances outside of a bankruptcy setting.  Some of the respondents probably have filed for bankruptcy – the poll does not appear to have asked – but, unlike many of the studies we discuss on this blog, it is not a survey of people in bankruptcy.  Yet many of the surveyed families are coping in the same ways that bankruptcy filers do.  They are doing things like putting off medical treatment, working additional hours or jobs, and moving to cheaper housing.  A full 26 percent said that they had increased their credit card debt in the past year in order to make ends meet.

What is particularly interesting is that the financial profile of the people surveyed looks something like a “before” picture of the “after” families we see in bankruptcy. 

Since those participating in the poll had to be employed, many are not currently experiencing the financial crises, such as job loss and medical problems, that seem to define families in bankruptcy.  (Of course, they could have family members who are sick, and one-third of people said someone in their family had lost a job in the past year.) But they are extremely ill-equipped to withstand any negative changes to their financial situation, mainly because they have almost no financial cushion to fall back on.  Half of the families surveyed have cashed in savings or retirements funds in the past year.  About 30 percent of their workplaces don’t provide any health insurance or vacation days (which could be used provide a buffer in many types of emergencies).  And 40 percent get no sick days.  Most telling are their own opinions on what they could survive.  Half said they would only make it a month if they suddenly lost their job, and one third said they would last two weeks or less before being in severe financial trouble.

Reading this article, I started thinking that these families were sitting ducks for bankruptcy.  They have nothing to fall back on should the worst happen and few possibilities for creating such a cushion. And over a quarter have already turned to credit-card debt to meet their basic needs.  This suggests that changes which would help the wider pool of people who are struggling financially may help some people avoid bankruptcy in the first place.


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This is a tough issue to analyze because you almost invariable get into the debate of worth of labor versus a "livable" wage, and then into what a livable wage is.

I don't know if there's really anything that can be done about this. It has to include much more than just financial data, such as family status, size, etc. Its pretty well established that a married couple (or cohabitation to a lesser extent) do better financially than a single person.

One quote that stuck out to me was "I might have to move back to Texas because I can't afford to live in Florida." It might be true, some places are cheaper to live in than others.

I guess in short that I'd love to see the actual data behind the poll and what depths they went into in analyzing the demographics of those polled. I think that would make analysis much easier for us armchair generals.

No cushion, No kidding! I am seeing and have seen over the years, people raiding their 401K to stay afloat. Some do not try to borrow and just take the cash on an “emergency” basis, but it puts them in the hole with the IRS. So if they use that money to pay credit cards they are swapping an unsecured (dischargeable) debt for a Priority or Secured (non-dischargeable) debt. I would say that 1/3 -1/2 do not have any retirement to speak of at all. The only savings if any that the average person has is their Tax Refund. The higher wage earners if they do not have a savings or retirement live month to month despite having higher than average earning potential. It’s like some sort of "physics" involved. The more they make the more they spend. Just like Discover advertises: "We are a nation of consumers" (so why not make the best of it?) Get rewards for being in debt….?????... It also seems as though the people who are out of a job have been going thru all of their unemployment as well. I used to think that the only people we see here are the ones who are “falling off the edge” and BK is there to catch them. I am seeing more and more of the “preemptive” consultations. (before things get out of hand) Instead of “how did I get this far” type of thing. Procrastination and unrealistic optimism seem to be a problem if you’re at or below “median” level once you have topped $10K in unsecured debt. It just takes one “domino” to fall and you’re in a world of hurt. (not anything we already didn’t know)

I am not a general. I am just a “grunt” on the front lines. I wish I could just see the numbers but unfortunately for me I just see the battles and not the war.

"people raiding their 401K to stay afloat" - and now you can do it with just a debit card:


OMG! You see thats why I like blogging here! You get to find out about crazy shit like that. Wow! Great pick up GPR.

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