Lack of Savings, Unpredictable Jobs Leave Huge Numbers of Americans in Economic Limbo
Fully 44% of Households Did Not Save for Emergencies in the Past Year, According to 2017 Prosperity Now Scorecard
Washington, D.C. – While unemployment has ticked downward and the poverty rate has declined, a dark economic cloud continues to loom over large swaths of the U.S. population, putting future prosperity increasingly out of reach for millions of families, according to new research from Prosperity Now (formerly CFED).
The 2017 Prosperity Now Scorecard found that while the growing number of people returning to work has boosted some families over the poverty line, few are able to save for a more financially stable future. Among the key findings: 44% of households did not set aside any savings for emergencies in the past year.
This inability to save stems in part from the increasing number of jobs that don’t provide a reliable stream of income, leaving many working families vulnerable to jarring ups and downs in their take-home pay. The Prosperity Now Scorecard (formerly the Assets & Opportunity Scorecard) found that one in five households experienced moderate to significant income volatility from month to month during the past year, which studies show most often results from irregular work schedules.
Racial disparities remain particularly stark. A startling 60.7% of Latino households and 56.7% of Black households have virtually no savings, compared to 28.2% of White households. These households are defined as liquid asset poor, meaning they don’t have enough savings or liquid assets such as retirement accounts to replace income at the poverty level for just three months if they lose a job or suffer another significant income loss.
“Beyond providing a cushion to get families through emergencies, increased savings and wealth allow families to invest in their future and gain ground for future generations,” said Andrea Levere, president of Prosperity Now. “It’s clear that far too many people are stuck in economic limbo. They may be getting by – but they aren’t getting ahead.”
Published annually, the Prosperity Now Scorecard offers the most comprehensive look available at Americans’ ability to save and build wealth, stay out of poverty and create a more prosperous future. This year’s Scorecard assesses the 50 states and District of Columbia on 60 outcome measures spanning five issue areas: Financial Assets & Income; Businesses & Jobs; Housing & Homeownership; Health Care, and Education. It also assesses the states on 53 policies that promote financial security.
The Scorecard’s overall state outcome rankings reveal the impact of policy decisions on outcomes for families. For example, since the Scorecard began publishing annually in 2012, Louisiana’s outcome ranking has fallen 15 spots to 50th place – more than any other state – as the impact of cuts to safety net programs such as Medicaid and Temporary Assistance to Needy Families took hold. A similar scenario played out in Kansas, which has seen its outcome ranking fall 10 spots to 21st place since 2012, a period when tax cuts for the wealthy and businesses forced dramatic shrinkage of programs for low-income families.
The Scorecard data reveal that small economic gains nationally have had little, if any, impact on overall net worth for families. Nearly 20 million households (16.9%) have zero or negative net worth, meaning they owe more than they own. And disparities in net worth by race and income are the largest of any data measured by this year’s Scorecard. Households of color have 14 cents for every dollar of net worth of White households, including 7 cents for Black households and 10 cents for Latinos. The lowest income quintile’s median net worth is just $3,500, compared to $137,870 for the 4th quintile and $377,200 for the top income quintile.
The largest component of net worth for the majority of households is home equity, so part of the explanation for stagnant wealth is that the homeownership rate has not improved nationally and has been declining since 2006. The median value of homes rose 7.2% from last year’s Scorecard to $194,500 but during that same period median incomes increased by just 3.8% to $55,775, meaning that homeownership is less affordable for those who do not already own a home.
Among the Scorecard’s other key findings:
- The poverty rate declined for the first year since the recession to 13.8%, but the gap between white households in poverty (10.4%) and households of color (21.8%) remained the same.
- The annual unemployment rate of 4.9% almost reached the 2006-07 low of 4.6%, but one in four jobs continue to be in low-wage occupations, a rate that has not changed since 2012.
- The rate of cost-burdened homeowners, meaning those paying more that 30% of their income for housing, is down to 29.6% -- eight percentage points lower than the high of 38% in 2010. Renters, however, are not faring as well, with more than half (50.6%) cost-burdened.
- More households are connected to the financial mainstream: just 7% of households are unbanked, a historic low, and just over 50% of credit users have a prime credit score, a 2.1 percentage point increase over last year’s Scorecard.
- The number of disconnected youth who aren’t in school or working was 12.3% – a 1.5 percentage point drop from last year’s Scorecard. This was driven by a substantial 2.1 percentage point decline in disconnected youth of color (14.9%).
- A significant number of people are opting for self-employment over working for others – 18.2% of workers own a microbusiness in this year’s Scorecard compared with 16.6% last year.
“While there are positive signs in our economy and in some of the data measured by the Scorecard, it’s clear we need to do much more. Good policy can have an enormous impact on the ability of families to achieve financial stability and long-term prosperity,” said Solana Rice, director of state and local policy for Prosperity Now.
Consider, for example, the impact of the Affordable Care Act, which has fueled a steady decline in the national uninsured rate from 16.7% in 2013 to the current rate of 10.9%. Additionally, the Scorecard found that the number of people forgoing a doctor’s visit due to cost has dropped significantly – from 15.9% in 2013 to 13.3% today.
The impact of strong policy at the state level is also evident. For example, California moved up 16 spots in the outcome rankings since 2012 to 26th place – more than any other state. During that period an improving economy allowed the state to increase investments in education, health and a range of safety net programs that help families achieve financial security.
But even relatively small policy changes can have a big impact. For instance, eight states (Delaware, Louisiana, Maine, Nevada, New York, North Carolina, Utah and Virginia) took steps in 2016 to deliver unemployment benefits on low-fee prepaid debit cards, ensuring recipients receive their full benefits. And three states (Alaska, New Jersey and New Mexico) now support first-time homebuyers by providing direct lending to borrowers.
Unfortunately, several states went in the opposite direction. Four states (Arizona, Delaware, Minnesota and Nevada) withdrew financial support of direct lending for first-time homebuyers and five states (Hawaii, Maryland, Minnesota, Ohio and Utah) stopped supporting microenterprise development through Community Development Block Grant funding.
“Unfortunately, many states continue to fall short at a time of growing uncertainly over the future of effective federal programs,” said Levere. “States need to lead the way as never before in enacting policies and programs that give families a real opportunity to improve their circumstances and invest in a better future for themselves and their children.”
To read an analysis of key findings from the 2017 Prosperity Now Scorecard, click here. To access the complete Scorecard, including compilations of individual state data, visit http://scorecard.prosperitynow.org/.
Prosperity Now (formerly CFED) believes that everyone deserves a chance to prosper. Since 1979, we have helped make it possible for millions of people, especially people of color and those of limited incomes, to achieve financial security, stability and, ultimately, prosperity. We offer a unique combination of scalable practical solutions, in-depth research and proven policy solutions, all aimed at building wealth for those who need it most. Visit us at www.prosperitynow.org.