Why So Many Americans are Broke
A recent Federal Reserve report confirmed that Americans are broke. The data shows that 46 percent of the nation’s citizens would be in trouble if they were required to come up with just $400 to cover an emergency. How did this happen? The answer to why so many Americans are broke ranges from a slow economic recovery following the Great Recession to the extensive cost of higher education.
Why so Many Americans are Broke
Despite improvements in some areas of the economy, the Great Recession has yet to end for many Americans. Numerous households continue to struggle with the nation’s sluggish labor market while stagnant wages and a higher cost of living are keeping people from regaining their lost financial ground. The Federal Reserve wrote, “Many households in the United States have been tested by the Great Recession. Large-scale financial strain at the household level ultimately fed into broader economic challenges for the country.”
What Role is Higher Education Playing in Keeping America Broke?
The cost of acquiring a degree is making some people reconsider whether it’s worth it to get one. In some regions, the cost of tuition is soaring past other types of inflation. Because of this, a college degree no longer guarantees material wealth.
USA Today published a University of Arizona study that started in 2007. According to the news source, more than half of the college students who participated in the survey admitted that they were having financial trouble.
In the past, a college education was an indicator of better career opportunities and higher annual salaries. Today, establishing a decent career is becoming a challenge for many people including those who have a college diploma. When college students graduate into a weak economy, they are often forced to take any available job just to cover their living expenses, which means that they’re usually overqualified for their positions. This is keeping America broke since too many of the country’s citizens are making less than they should be.
Homeownership is Falling by the Wayside
For years, homeownership has provided financial stability for everyday Americans. However, the high cost of homeownership in many of the nation’s cities is keeping people from buying one while the recent housing bubble collapse is preventing current homeowners from upgrading. According to the Wall Street Journal, the nation’s homeownership rates fell during the first quarter of 2016. In the first three months of the year, the rate was 63.5 percent. This number was down from 63.8 percent during the fourth quarter of last year.
The American Obsession with Cars is Adding to the Financial Problems of Many
While Americans have stretched their finances to afford the latest automobile for years, their infatuation with cars may be ending because vehicle purchases are causing people to go broke. The high cost of new cars has resulted in a time extension of the average auto loan. Today, the average payoff term for a car loan is 66 months, which is the highest amount that it has been since Experian started keeping track of this data in 2006. According to reports, about 25 percent of all new vehicle loans have terms that range from 73 months to as long as 84 months. The average amount that people are financing for their vehicles is also growing. This number recently reached a high of $27,000.
Melinda Zabritski, the senior director of automotive credit for Experian, said, “As the cost of purchasing a new vehicle continues to rise, consumers clearly are stretching the loan term to help lower monthly payments, keeping them at a manageable level.” This makes vehicles more affordable, but it also keeps people in debt longer.
Americans are Losing the Battle to Save Money
Americans are failing in their efforts to save money. Reports show that 26 percent of the country’s citizens do not have emergency money put aside. In fact, about 67 percent of Americans have less than six months of expenses saved while 50 percent have less than three months of expenses in the bank. In addition, the problem is no longer limited to reduced income households. It is now extending to those with incomes of $75,000 and above.
Decimated Wealth Over the Last 10 Years
When it comes to why so many Americans are broke, the reasons seem endless. From the housing crash that happened a few years ago to the high price of a college education, too many people are struggling to make ends meet. An article in MarketWatch confirms that most of the nation’s citizens are just one paycheck away from financial ruin. To read more about why Americans are broke, visit the PersonalMoneyStore.com.