New Study: 51 percent of Americans Are One Missed Payday Away from Financial Ruin

Inside Subprime: June 11, 2019

By Jessica Easto

According to a new survey by NORC at the University of Chicago, 51 percent of Americans would be forced to dip into savings or find alternative financing if they missed only one paycheck. An additional 15 percent “would experience hardship” after missing two paychecks. A full 30 percent of respondents said they couldn’t miss any paychecks without financial repercussions.

The survey paints a stark picture, one in which many Americans—particularly low-income and Hispanic households, according to the data—have very little financial security.

“Even short disruptions in pay can cause significant hardship, as most Americans appear to be living paycheck-to-paycheck,” said Angela Fontes, director of the Behavioral and Economic Analysis and Decision-making (BEAD) program at the research institution that conducted the survey. “The issue is particularly salient for Hispanic and for low-income households, where the vast majority of these households would need to begin depleting savings, if they have any, sooner.”

Many of these households do not have savings to dip into. Those households reported that they would have to turn to other options, such as credit cards (47 percent), skipping essential bills payments (24 percent), or seeking risky, short-term alternative financing like payday loans or title loans (17 percent).

“Research shows that high interest rates on credit cards and short-term loans can be particularly dangerous fallback options that may increase debt and financial challenges over time,” said Fontes. “While the funds made available through a short-term loan may address an immediate financial need, these quick-fix solutions frequently come with long-term consequences.”

Fontes may be referring to the astronomical interest rates (almost 400 percent on average) and hidden fees that can build debt traps and wreck credit scores.

According to some reports, 40 percent of US households are “liquid asset poor,” which means they do not have access to a basic level of savings. The story is worse for communities of color, with 57 percent of households being liquid asset poor. Another report found that 19 percent of Americans do not have any savings set aside and only 31 percent have set aside $500 for emergencies.

Many households are just one emergency—or one missed paycheck—away from financial disaster or being forced to consider risky financing options.

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