1 in 8 Moderate Income Americans Rely on Financial Services Like Payday Loans

Inside Subprime: Feb 26, 2019

By Lindsay Frankel

The unemployment rate in the United States has declined to 3.7 percent, the lowest the country has seen since 1969, and the stock market is booming, but Americans are still struggling financially. And it’s not just low-income workers that are experiencing financial insecurity.

According to a recent study conducted by the Urban Institute, one third of adults living on a “moderate income” (defined as earning between $40,840 and $81,680 for a family of three) have experienced financial distress in the past year. And one in eight of these workers reported relying on risky payday loans, auto title loans, or pawn shop loans to get by.

The study measured financial distress as relying on alternative financial services as well as having a lack of funds to cover an emergency expense. 19.6 percent of moderate income adults reported that they wouldn’t be able to cover a $400 emergency expense. In addition, 15.6 percent said they’d missed a payment on a loan or credit card, and 16.9 percent said they’d received calls from debt collectors.

“People assume if you have a job that pays $50,000 per year or more you’ll be financially secure,” said Steven Brown, author and research associate at the Urban Institute. “But there are factors like student-loan debt, housing expenses, and medical expenses. And we’ve found having a job — even a good job — hasn’t kept pace with all those expenses.”

Of course, financial insecurity was more common in families living in poverty. More than 22 percent of workers with poverty-level incomes relied on payday loans or other alternative financial services in the last year. Financial distress was also more common among young adults and people of color.

Several other recent studies have highlighted that most Americans are strapped for cash, even those with a moderate income. A Federal Reserve report found that 40 percent of Americans couldn’t come up with $400 to cover an unexpected expense, and a CareerBuilder survey revealed that 78 percent of Americans are living paycheck to paycheck.

“Many people are living on the edge,” Brown said. “They are in positions where everything is going right as long as nothing goes wrong. But if a surprise hits like a car breaking down or health bills hitting, it can really throw them off.”

The benefits of a robust economy have disproportionately impacted wealthy Americans while middle-class workers haven’t seen their wages increase for years. The disparity is overwhelming; in 2015, the richest 1 percent of Americans earned 22 percent of all income.

And costs continue to rise, leaving even moderate income Americans on shaky financial ground. A book titled “Squeezed: Why Our Families Can’t Afford America” found that middle class living expenses have increased 30 percent from 2 decades ago. Rising housing costs, child care and medical expenses, and education costs are to blame. Jobs that used to offer financial security, such as teaching jobs, now aren’t covering the bills.

“These days, professors may be more likely than their students to be living in basement apartments and subsisting on ramen and Tabasco,” wrote author Alissa Quart.

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