Study shows 43 percent of American families are struggling to afford basic expenses

Inside Subprime: May 21, 2018

By Lindsay Frankel

The United Way ALICE project recently released a study that showed 43 percent of U.S. households don’t earn enough “to survive in the modern economy.”

What that means? More than 51 million American households that can’t find room in their monthly budget for necessities like housing, food, health care, child care, transportation, and cell phones. This includes families living in poverty as well as 34.7 million families that are considered “Asset Limited, Income Constrained, Employed” (ALICE) by United Way. These kinds of families often live above the federal poverty level, which disqualifies them from receiving certain types of assistance, even as they struggle to make ends meet.

ALICE individuals earn low hourly wages as child care workers, cashiers, wait staff, home health aides and office clerks, and as a result have little to no savings to fall back on. When these financially fragile families face emergencies like repairs or medical bills, it can be enough to destroy their lives. Many times, these people, who have no access to traditional lines of credit, end up turning to predatory payday loans when facing financial hardship.

States with the largest percentage (49 percent, to be exact) of families below the ALICE threshold were California, New Mexico, and Hawaii. Hawaii and California also happen to be two of the most expensive states to live in. North Dakota had the lowest percentage of struggling families at 32 percent.

The data for some states was broken down by county, with even higher rates in some counties. For example, Idaho had as many as 68 percent of families living below the ALICE level in some counties. The study showed the annual household survival budget for a single adult in Idaho was $19,824, but this minimum amount leaves no cushion for when emergencies arise, leaving individuals at this income level vulnerable to predatory lending services.

A study by the Pew Charitable Trusts showed that payday loans are used most by people earning between $15,000 – $25,000. ALICE families are therefore at risk of incurring fees and interest rates from predatory lending services that can further strain their financial lives. Payday loans in Idaho, a state where so many families are struggling, are notorious for their high interest rates. In Idaho, the typical payday loan costs the borrower 582 percent in interest annually.

Though the unemployment rate has dropped under 4 percent for the first time since 2000, many Americans with part-time or full-time employment still struggle to cover their basic expenses because of their low wages. In the US, 66 percent of jobs pay less than $20 hourly. Low-income families may be tempted by no credit check loans when emergencies arise, but these predatory services only increase the financial burden on families.

To learn more about predatory lending in America, check out these related pages and articles from OppLoans:

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