A new study by the nation’s top self-regulating enforcement group for the investment community shows the gap between every-day Americans and the affluent has continued to grow over the past 10 years, including a growing number of Arkansans who are struggling with balancing financial obligations with mounting medical debt.
The nonprofit Financial Industry Regulatory Authority (FINRA) released its national survey on financial capability on June 20 that finds the gap between the Haves and the Have-nots continues to widen. That story includes a growing number of cash-strapped Americans who are failing to save money, struggle with student loan debt and face decreasing financial literacy, despite economic growth and declining unemployment over the past 10 years.
The new study, called “The State of U.S. Financial Capability,” shows that key indicators of financial capability are no longer improving in step with the economy. In Arkansas, a significant part of financial capability is the ability to make ends meet through adequate savings and have enough resources for a medical emergency.
“This year marks a decade since one of the most significant financial downturns brought financial crisis and loss to millions of Americans,” said Gerri Walsh, president of the FINRA Foundation. “While we’ve seen improvements in key measures of financial capability over the years, the 2018 findings suggest we have hit a plateau — and that not all Americans have recovered at the same rate.”
The nationwide survey of more than 27,000 respondents is conducted every three years and is one of the largest and most comprehensive U.S. financial capability studies. Originally developed in 2009, it measures key indicators of financial capability and evaluates how these indicators vary with underlying demographic, behavioral, attitudinal and financial literacy characteristics — nationwide and state-by-state.
In Arkansas, the FINRA report noted that 18% of individuals reported that over the past year their household expenses outstrip their annual income, not including the purchase of a new home, car or other big investment. Another 29% of working Arkansans reported having medical bills that are past due.
“Individuals who are not balancing monthly income and expenses are not saving and thus may find themselves struggling to make ends meet,” the FINRA report states. “Overdue medical debt can further compound a household’s ability to meet monthly financial obligations.”
Nationally, trends from FINRA’s past four waves of the financial capability study show signs of widening or persistent gaps among certain groups on key measures of financial capability. For example, 19% of individuals reported that over the past year their household spent more than their income. Another 46% of Americans lack a rainy-day fund for a medical emergency, while 35% of credit card-holding Americans paid only the minimum during some months in the last year.
Following are other key findings from the study.
• While Americans, as a whole, have seen their ability to cover monthly expenses and bills improve since 2009, the 2018 data show that younger Americans, those without a college degree, African-Americans and those with lower incomes are struggling financially, calling into question the improved economy’s ability to work as needed for all.
• Americans are not saving. Despite improvements in the ability to make ends meet, there has not been an increase in the number of Americans’ saving. Nearly half of Americans have not set aside money to cover expenses for three months. Moreover, Americans are stressed about money. More than half (53%) of those surveyed reported that just thinking about their finances makes them feel anxious.
• Most Americans have not planned for retirement. More than half of Americans (54%) have not tried to determine what they need to save for retirement, and only 58% of Americans have a retirement account, based on the survey. The study reveals a gender gap for retirement preparedness may be widening in a way that favors men.
• High education costs are causing buyer’s remorse for many. Among Americans with student loans, nearly half (47%) wish they had chosen a less expensive college. Among those with student debt, a similar percentage (48%) is concerned they will not be able to pay off their loans, and many did not fully understand what they were getting into when they got their loans, the survey shows. Meanwhile, late loan payments are rising.
• Financial literacy has declined. Only 34% of respondents could answer at least four of five basic financial literacy questions on topics such as mortgages, interest rates, inflation and risk — compared to 42% in 2009. This decline in financial knowledge appeared most pronounced among millennials and younger Americans ages 18 – 34 who have had little exposure to high interest rates or inflation as adults.
• Financial education matters. Americans who have participated in a substantial amount of financial education are more likely to save and less likely to overdraw their checking accounts. Nearly half of Americans (49%) who have received more than 10 hours of financial education report spending less than they earn, compared with 36% of those people who received less than 10 hours of financial education.
Link here to view the full FINRA report and state-by-state datasets.