What the Fed's Latest Report Says About America's Poorest

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What does the Federal Reserve's latest report say about America's poorest?

Short answer: A lot. Every year the Federal Reserve spends a lot of time polling tens of thousands of Americans for its Report on the Economic Well-Being of U.S. Households. They find out about all kinds of factors -- citizens' standard of living, how much money they make and spend, their expectations for their future, how their educations have paid off, among many other details. It makes fairly interesting reading if you're into that kind of thing. But as a finance writer, there were several points that made a clear impression on me.

First the good news. Americans report that they're doing better than they have since the Great Recession. They feel more secure, their bills are more likely to get covered, and it's a little easier to find work than it has been in recent years. But while most Americans aren't facing desperate financial circumstances, their personal finances certainly couldn't be described as healthy either.

So here's the bad news. Forty-seven percent of respondents said that if they had a sudden emergency costing $400, they couldn't afford it, or would have to borrow money from family or friends to get by. That's bad enough, but of the 53 percent of people who said they could handle a $400 debt, most of these could only do so with the help of a credit card.

But things get worse for folks making less than $40,000 a year. Using that same $400 emergency standard, only 31 percent of this population could pay this amount by any means, including payday loans and the like. Fifty-five percent of people under this $40,000 threshold also have no retirement savings and plan to work as long as they possibly can, regardless of age or health.

Let's leave this example for a moment and talk about education. Higher education has gotten a bad name in some circles since the 2008 financial crisis, but the survey highlights strikingly different opinions among people who completed an associate or bachelor's degree and those who started but didn't complete such a degree. Graduates overwhelmingly say that their education was worth the cost. People who didn't go on to graduate overwhelmingly say that higher education wasn't worth it.

The Fed's take on this latter phenomenon is that people who don't finish college are statistically more likely to be first-generation college students. If they can't complete their studies, for whatever reason, their student loans may fall harder on them than they would on someone who has one or more generations of college-graduated older relatives. It's not inappropriate to bring up issues of class in a situation like this. Many people report feeling as if they've "made it" when they graduate. From a financial perspective, they might not be far wrong.

The last point I'll tackle (of the dozens covered in the report) is Americans' ability to secure credit. A sixth of Americans aren't able to get a sufficient loan through traditional means, like banks. Of these, 38 percent go on to secure credit through much more risky methods, like payday loans. Using this insight and the above numbers on education, it's easy to see that there's a financial threshold that's difficult for America's poorest to cross. The Fed's report suggests that as the economy improves for Americans on the wealthier side of that imaginary line, it may not be getting any better for those on the poorer side of things.

Why am I interested? I'm a Canadian citizen. But like a lot of the people described in the Fed's report, it was a challenge for me to get my associate degree. I often wonder, what if I hadn't completed it? I'm very sympathetic to the plight of America's poor, and to the opportunities that are available in America for someone who is no longer poor. While it's still the world's largest economy, financial enthusiasts like myself watch the way America handles its money problems with interest. In the next decade, and especially in the next presidential election cycle, this is going to be a hot button issue: the segment of the American economy that fell down -- and is staying down.
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