70% of Americans have Less than $1000 in Savings

Yes, you read that correctly. Well, let’s be more precise: Per the survey done by GObanking Rates, 69% of Americans have less than $1,000 in savings. Erratum: My title has 70%, so I’m sure that 1% makes a huge statistical difference for some. This survey has been done each by this organization since 2014, and for the 2019 survey, it contains 846 respondents.

An argument can be made that they only polled 846 individuals. Fair point. But, I would not be surprised if more respondents were polled, the percentage would not change. There is a myriad of reasons why, but I will mention some here.

50 Percent of Americans Earn $33,000 per year or Less

I recently reported that 50% of Americans earn $33,000 per year or less. This analysis was provided by the United States Social Security Administration. Yep, that is correct: $2,750 per month. This amount is before taxes. Consider housing, food, transportation, child care, and etc, as the expenditures eat into the gross/net income. Since this is the case, it makes it difficult to save money due to the next point…

Rising Cost of Living aka Inflation

The issue of the rising cost of living, specifically for those earning less than $33,000 per year, makes it increasingly difficult to develop any sort of savings. The core issue of the increased cost of living is due to inflationary measures. If you have read the articles on this page, the issues surrounding inflation are constantly addressed. Inflation is not the rise in prices, although the economic actor will see prices rise. When The Federal Reserve continues with loose monetary policy, the winners are the large financial institutions, the cost of inflation is paid by those who earn less than $33,000 per year.

As the dollar is devalued based upon the implementation of loose monetary policy by The Fed, it takes more dollars to buy the goods these people want and need— giving the illusion that prices are actually rising. Due to this economic phenomenon, people in this economic income segment have almost no savings to cover for emergencies. When those emergencies come, these individuals must lean on credit to cover these unforeseen expenses. Once the crisis has ended, the user is stuck with a credit card balance, as this adds to their monthly expenses—these expenditures are currently very close to their income. At this point, many can not continue to pay the regular expenses, and the mounting credit card debt. What happens next? The credit card is defaulted.

Credit Card Default Rates Rising

Due to the lack of income, coupled with the lack of savings, it is no shocker that credit card default rates are on the rise. To be specific, the credit card default rates are on the rise for sub prime borrowers. This trend isn’t exclusive to just credit cards, it is also expanded to other sub prime lending sources such as pay day loans, auto loans, and the like. As previously mentioned, these types of credit are used to help cover the income gap in expenses or cover emergencies. Another source will be for medical expenses as well, due to the rising prices of health care.

Conclusion

At the time of this writing, political pundits will remark how fine the economic metrics look, namely how unemployment is so low. Kudos. Yet, there signs of things that could lead to a market correction, namely in the capital markets. Some of the prime reasons, in my opinion, is based upon Americans not having enough in savings, and the central banks pumping more currency into the banking system. However, since we are living in a consumption based economy(meaning consumption now versus later), there is very little incentive to save..thanks to inflation.

Excursus

Survey 69% of Americans have less than $1,000 in savings: https://www.gobankingrates.com/saving-money/savings-advice/americans-have-less-than-1000-in-savings/