Nearly half of all Americans do not have enough savings to ride out a single emergency. And many more may be trapped in a cycle of debt on a certain type of high-interest loan. Two reports in the Los Angeles Times shine a light on the tenuous grasp many Americans have on financial solvency.
An article by Shan Li says that nearly 44 percent of American households would find themselves in financial ruin if they fell victim to one emergency. That is according to a study by the nonprofit Corporation for Enterprise Development (CFED). Those families could not pay for their basic living expenses for three months if they lost their jobs or became too sick to work. Furthermore, nearly one third of Americans do not have a savings account at all.
In Florida, the rate is even worse than the nationwide average. The CFED measures the “liquid asset poverty rate,” defined as the percentage of households without enough cash or other liquid assets to live at the poverty level for three months if their income stopped. Florida’s rate is 51.9 percent, meaning more than half of Florida families fit this profile. That puts the Sunshine State 35th out of the 50 states.
Experts say stagnating wages, rising prices, and high-interest debt may be to blame for the discouraging figures.
The second article, by Alejandro Lazo, explains one widely-held form of high-interest loan called a payday loan. A payday loan is a small, short-term, unsecured loan that depends on the borrower’s ability to demonstrate that they are employed.
Although the loans are marketed as short-term, a study by the Consumer Financial Protection Bureau (CFPB) shows “high sustained use.” The CFPB found that the average payday loan customer took out 11 loans during a year-long period and paid a total of $574 in interest and fees. And the median number of days that borrowers remained indebted was 155.
The CFPB reports also found no real difference between payday loans and so-called “deposit advances” offered by some large banks.
High-interest debt creates a cycle of poverty that is very difficult to escape. It is important to make every effort to build a cushion of cash reserves so that you can weather a storm without resorting to burdensome debt. If you feel like your debt is keeping you from getting your head above water, it may be time to speak with an experienced bankruptcy attorney.