American Budgeting and Saving Behavior

Nearly half of all American consumers can easily cover their day-to-day expenses, while the satisfaction with their personal finances has nearly doubled in the past six years. Although that signals improvement, experts caution it’s more indicative of holding steady than emerging prosperity.

Making ends meet — the ability to balance monthly income and expenses — continues to present significant challenges for consumers, according to the 2015 National Financial Capability Study (NFCS), released by the FINRA Investor Education Foundation.

Despite more positive statistics in meeting expenses and overall financial satisfaction, it hasn’t correlated to better budgeting. Two-fifths of Americans (40%) spend less than their income, 38% spend about equal to their income and 18% spend more than their income. Those figures have remained virtually the same since 2009.

Financial Challenges of Millenials

The greatest concerns are found among young Americans (18-34 age group), where 22% reported taking a loan from their retirement account, 26% overdrew on their checking account and 29% were late with mortgage payments.

“It is troubling and it spells a difficult time for Millennials,’’ said Gary Mottola, research director at FINRA Investor Education Foundation, an author of the study. “These students came of age in an economy and job market that is weak at best, although better than it was. It’s very troubling to see them tapping into retirement and overdrawing their checking accounts. Their financial literacy levels are very, very low and you can see where all the forces make it a tough situation.’’

“It’s a very dangerous practice for these individuals,’’ said Ric Edelman, the chairman and CEO of Edelman Financial Services, an author of eight books and a host of a weekly syndicated talk radio program on personal finance. “Many young adults are not aware of the tremendous damage they are doing to their financial future by borrowing from their retirement plans and failing to build cash reserves. They’ll discover this 20 years from now when they’re in their 50s, then they’ll lament they didn’t pay better attention 20 years earlier.’’

The NFCS study polled 27,564 American adults (roughly 500 per state, plus the District of Columbia) on four major areas of their financial health: Making ends meet; planning ahead; managing financial products; and financial knowledge and decision-making.

FINRA released its initial Financial Capability study in 2009 and has conducted it every three years since then, helping to provide an understanding of how consumers view their financial health.

Other findings from the study include:

• 48% of consumers say they don’t find it difficult to cover expenses and pay bills, an improvement from 36% in 2009. Meanwhile, 31% are satisfied with their personal finances (up from 16% six years earlier, during the Great Recession).
• One in five Americans (21%) have unpaid past-due medical bills and 28% skipped medical service because of cost concerns. Insured Americans have increased by 9% (to 87%) likely because of the Affordable Health Care Act. The largest jump was an 18% health-insurance increase (to 77%) among Americans with annual income less than $25,000.
• 36% of young Americans (18-34) say they receive financial help from family not living in their household, up from 32% in 2009.
• More than one-third (34%) say they probably or certainly could not come up with $2,000 in the next month to handle an unexpected need, such as a major car or housing repair. The figures were particularly high for those without college degrees (81%), those with incomes of less than $25,000 (63%) and African Americans (48%). Financial help for African Americans, in particular, greater access to education without burdensome loans, would help to bridge the emergency fund gap.

It runs parallel to a study by the American Psychological Society on stress that listed finances as the No. 1 stressor, concluding that 54% of Americans have just enough or not enough income to meet expenses.

It’s not a news flash.

According to a 2016 survey by Pew Charitable Trusts, 55% of American households don’t have enough liquid savings to replace a month of lost income. A 2014 Bankrate survey concluded that just 38% of Americans have enough to cover a $1,000 emergency-room visit or a $500 car repair with their savings.

Not Enough Income To Achieve The American Dream

In 2010, the U.S. Department of Commerce commissioned a “Middle Class in America’’ report, establishing its common aspirations as home ownership, a car for each adult, health security, college education for the children, retirement security and a family vacation each year.

In 2014, a USA Today report said it would require an annual income of $130,000 to reach those aspirations. That year, the American median family income was only $53,657.

“We are seeing improvement in economic behavior and things are clearly better for a lot of people due to the improved economy,’’ Mottola says. “But there are a lot of larger economic issues Americans are facing that can be improved, particularly in their day-to-day lives.’’

There is some evidence that credit counseling can help consumers reduce expenses and improve savings capability. An NFCC-commissioned study on credit counseling indicates improvements in financial capability after counseling and enrollment in a nonprofit debt management program.