On May 20, 2016, the Board of Governors of the Federal Reserve released their annual survey regarding the financial health of the U.S. Economy. The report is titled the “Report on the Economic Well-Being of U.S. Households in 2015”. This is a study the Federal Reserve conducts every year as a way of assessing the current financial health and well-being of U. S. Households. Around this time last year, I wrote a blog post about the 2014 findings. As with last year, a couple of items in the 164 page report caught my attention. The findings in this year’s report are eerily similar to
Unexpected $400 Expense Causes Financial Hardship for Most
As with last year’s report, one item in particular stood out for me. In a section titled “Financial Hardships”, the Federal Reserve found that just 54% of all respondents stated they could handle an unexpected $400.00 expense without borrowing the money or selling an asset. In other words, 46% of all respondents stated that an unexpected $400.00 expense would create a financial hardship. This virtually mirrors last year’s report in which 47% stated the same. In essence, the Federal Reserve’s study appears to indicate that while most Americans are not worse off, they are also not better off than they were a year ago. However, that would assume that we live in a vacuum and that the effects of the local and national economy have no effect on our standard of living. Of course we do not live in a vacuum and changes in the economy, both good and bad, affect our financial condition. Because of that, this report is actually far more concerning than last year’s report.
US Economy in Better Shape in 2015
First, the overall economy in the U. S. was in much better shape in 2015 than it was in 2014. The average unemployment rate for 2014 was 6.2% while the average unemployment rate for 2015 was significantly lower, averaging just 5.3%. As the U. S. economy grew and continued to improve, the financial condition of its citizens did not. Further, several key items that most Americans purchase everyday cost significantly less in 2015 than in 2014. For example, the average price for a gallon of gasoline in 2014 was $3.37. This compares to $2.42 for 2015. The average price for a gallon of milk fell from $3.69 in 2014 to $3.41 in 2015. Even the price of Fresh Chicken fell from $1.53 per pound in 2014 to 1.48 per pound in 2015. The situation becomes even bleaker when you combine the above data with the fact that the Government’s own inflation calculation shows that overall inflation dropped from 0.8% in 2014 to 0.7% for 2015. Thus, with an ever improving economy, both from an unemployment and inflationary standpoint, the fact that the number of people facing financial hardships exactly mirrors that of the previous year is very alarming and should be of concern for our political and financial leaders. With significantly lower unemployment and lower inflation, Americans should have been in a far better financial situation. In this case, staying the same is actually very bad. Here is a link to the Federal Reserve’s full report.
If a relatively minor unexpected expense causes a relatively major financial hardship, you should consult with an attorney who understands finances and practices bankruptcy. The definition of bankruptcy is when your income minus your normal living expenses leaves you needing to borrow money to pay for those normal living expenses. Contact any of the attorneys at Bond & Botes to get a free, no-obligation review of your debt and finances.
Don Lawson is the Office Manager of the Bond & Botes Law Offices location in Knoxville, Tennessee. He holds degrees in both Accounting and Finance that he’s put to use analyzing complex business bankruptcy cases for the firm. Read his full bio here.