Next Avenue: Many Americans are only just getting by

Another analyst Combines the Tesla bulls, Updating the stock to buy

August 9, 2017

Debt ceiling deadline: US could risk default by early October

August 9, 2017

This report is reprinted by permission from NextAvenue.org.

Despite a growing economy and the lowest U.S. unemployment rate in 16 years, things aren’t looking up for many Americans — financial fragility is especially an issue for those who have low incomes and for minorities, according to the new 2017 Prosperity Now Scorecard.

Getting by, but not getting ahead

“Since last year’s Scorecard, the big-picture indicators reveal that individuals may find it easier to get by — unemployment is poverty and down is down,” said Kasey Wiedrich, director of applied research at Prosperity Now (formerly CFED), a progressive public policy nonprofit. “But when you really look at whether individuals are able to get forward, to achieve financial stability and build wealth, we are not seeing improvements.”

The median net worth in the U.S. ($76,708) has not changed significantly over the past three years, Prosperity Currently noted. And nearly 20 million households (about 17%) have zero net worth or owe more than they have.

The U.S. market, the Scorecard’s report said, has shown “signs of gaining momentum — but only for a lucky few.” It is not quite a glass half empty/glass half full situation. It is more like a glass that’s mostly empty.

4 reasons for the economic dichotomy

There are four big reasons for the dichotomy, according to the numbers Prosperity Now crunched for its newest “data and advocacy tool,” which assessed all 50 states on 113 measures in five problem areas: Financial Assets & Income; Businesses & Jobs; Homeownership & Housing; Health Care and Education:

Income volatility: Prosperity Now looked at this economic measure for the first time and found that one in five U.S. households “experiences moderate to significant income fluctuations from month to month.” The most common cause of income volatility, according to a Federal Reserve System study: unreliable employment. Income volatility, Wiedrich noted, translates into an inability to save. As Rachel Schneider, senior vice president at the Center for Financial Services Innovation and co-author of this new book on income volatility, “The Financial Diaries,” recently told me: “We’ve got a false story that individuals are overspending and not saving for retirement. The truth is they have very real needs they need to cover this year.”

Low-wage jobs: True, unemployment is down. So is underemployment — a measure which includes discouraged workers not actively seeking work and people working part time because they can’t find employment. The underemployment rate slid to 9.8%, the first time it dropped below 10% since 2007. However, the rate of low-wage jobs in America has remained stagnant since 2012.

Today, one in four U.S. jobs is in a low-wage occupation, the Scorecard noted. Put another way, those jobs don’t pay enough to pay the cost of living for full-time employees.

Housing unaffordability: In the past year, median home values jumped by 7.3% ($194,500 is the new median home value), but median income only rose by 3.9%. Meantime, 50.6% of all tenants remain “cost-burdened” — they invest more than 30% of their income on housing. Consequently, the U.S. homeownership rate held constant at 63 percent this past year. Yet foreclosures and delinquent mortgages fell and, Prosperity Currently found, there was a 3.8 percentage point decline this past year in the national rate of homeowners with high-cost mortgage loans.

In other words, said Wiedrich, “for men and women who don’t already possess, homeownership is becoming cheaper.” And homeownership is the chief way of building wealth in America.

Racial economic disparities: The Prosperity Currently Scorecard cited striking chasms between the financial well-being of blacks and Latinos compared with whites. By way of instance, black employees are now more than two times as likely as white workers to be unemployed (8.7percent. 4.0%). The unemployment rate for blacks ticked up slightly in the past year, as it dropped dramatically for whites.

And while more than half of white households in all 50 states own their houses, that’s the homeownership rate for black households in just four countries, the Scorecard said. As Laurie Goodman, co-author of the Urban Institute’s recent report, “Are Gains in Black Homeownership History?” Recently told Next Avenue writer Rodney Brooks, “Black men and women are moving into homeownership at a much slower rate than anything we’ve seen in the past.” A December 2016 report by the National Academy of Social Insurance, “Social Security and the Racial Gap in Retirement Wealth,” noted that the average white household age 47 to 64 has housing wealth of $67,000 and the normal African-American household in that age group has zero home equity.

Income poverty — the proportion of households earning less than the federal poverty line — “remains disproportionately high among communities of color,” the Scorecard report said. The income poverty rate for blacks is roughly 25% and for Latinos it is about 22%; for white households, the speed is a hair over 10%.

Signe-Mary McKernan, economist and co-director, chance and ownership initiative in the Urban Institute, told Brooks in March 2017: “The American dream has not happened for African-Americans and Hispanics.”

The ‘financial red zone’

Put this all together, and it is not tough to understand why 44 percent of U.S. households didn’t set aside any savings for emergencies in the past year.

Or why roughly 37% live in what Prosperity Now calls “the financial red zone of liquid asset poverty” (meaning they don’t have enough in cash and other liquid assets to replace income at the poverty level for three months if they lose their jobs or can’t work). The liquid asset poverty rate is down from 44 percent in the last Scorecard, however, the Prosperity Now people say part of that drop is merely because of change in the way the government compiles the stats.

Washington, wealth-building and retirement

A few recent federal actions haven’t helped.

For instance, Prosperity Now notes that in 2017, Congress “gutted” the federally-supported Assets for Independence anti-poverty program. This little-known, 19-year-old program, administered by the U.S. Department of Health and Human Services, has helped low- and moderate-income families save to purchase a house, pay for college or begin or expand a business by matching a portion of the money they’ve put aside.

Purchasing those assets and starting to build wealth is “a key element in economic freedom,” said Wiedrich. Indeed, a current  Urban Institute research  found that the participants in the Assets for Independence program saved considerably more than low-income men and women who weren’t in it.

Congress also just repealed an Obama government rule change  which would have made it easier for states to create retirement plans for employees without them.

Prosperity Now is also fearful of what’s on the agenda in Washington. “We think there is a good deal of effort now to cut back on benefits which will really hurt families and worsen outcomes, especially for low-income households,” said Wiedrich.

Rays of sunshine

On the other hand, over the past year, there have been a few rays of sunshine at the local and state level to help residents become more financially secure.

According to Prosperity Currently: three countries improved their paid leave policies; nine made advances in the minimum wage and five revved up Secure Choice retirement plans for individuals without access to employer-sponsored retirement programs. The Aspen Institute Financial Security Program’s David S. Mitchell and Gracie Lynne just published an article saying that Oregon, one of the Secure Choice states, is thinking about the idea of including in its program what’s called a “sidecar account” — a helpful way for people to save automatically and frequently for emergencies, not just for retirement.

After participating in the Aspen Institute’s current  Economic Security Summit, Alex Mazer, co-founder of this retirement-security group Common Wealth, wrote that “the declining economic safety of the average American is increasingly seen as the biggest challenge facing the country.” He pointed to stagnant wages, wealth and income inequality and persistent inequities across racial, gender and geographical lines.

He’s right. But, as Prosperity Now’s report said: “While the situation is dire, it is far from hopeless.”

Richard Eisenberg is the Senior Web Editor of this Money & Security and Work & Purpose channels of Next Avenue and Managing Editor for the Website. He is the author of “How to Prevent a Mid-Life Financial Crisis” and has been a personal finance editor at Money, Yahoo, Good Housekeeping, and CBS Moneywatch. Follow him on Twitter @richeis315.

This report is reprinted by permission from NextAvenue.org, © 2017 Twin Cities Public Television, Inc.. All rights reserved.

More from Next Avenue:

Comments are closed.

Buy now