According to a Federal Reserve Board study, 47 percent of respondents said that if faced with a $400 financial emergency, they could not come up with the money or would have to borrow the money or sell possessions.
What’s even more troubling is that it’s not just the poor who are living on the financial edge, as accomplished book author Neal Gabler noted in his Atlantic article, The Secret Shame of Middle-Class Americans. Despite possessing a graduate degree and enjoying a flourishing writing career that includes the publication of several books, he explains that he too would have trouble securing $400 for a financial emergency.
“I know what it is like to have to juggle creditors to make it through a week. I know what it is like to have to swallow my pride and constantly dun people to pay me so that I can pay others. I know what it is like to have liens slapped on me and to have my bank account levied by creditors. I know what it is like to be down to my last $5—literally—while I wait for a paycheck to arrive, and I know what it is like to subsist for days on a diet of eggs. I know what it is like to dread going to the mailbox, because there will always be new bills to pay but seldom a check with which to pay them ……..
You wouldn’t know any of that to look at me. I like to think I appear reasonably prosperous. Nor would you know it to look at my résumé. I have had a passably good career as a writer—five books, hundreds of articles published, a number of awards and fellowships, and a small (very small) but respectable reputation.”
With stagnating wages combined with rising health care and education costs, it’s no wonder many Americans are becoming increasingly financially insecure. Add the lingering effects of one of the worst depressions in American history, and you have the ingredients for a toxic storm tormenting the poor and middle class alike.
Yet, while we can’t control all of the factors affecting our financial circumstances, there is still plenty we can do to put our finances on firm footing. First and foremost, stop comparing your financial accomplishments to those of others. We often define our financial success by comparing ourselves to our neighbors and colleagues, and too often we will consciously and subconsciously do whatever it takes to keep pace.
We fall victim to what I call the financial duck syndrome. While a duck may appear to glide effortlessly across the surface of the water, what we cannot see is that below the surface the duck is paddling furiously to stay afloat. On the surface many of the people we try to emulate appear to be the epitome of financial success, flashing their late model cars, fine fashions and enviable homes, but behind closed doors they’re paddling furiously just to make it from paycheck to paycheck. Consequently, the financial success we struggle to pattern is more often than not a mirage, a piece of financial fantasy.
Second, we have to become more financially literate. A recent S&P Global Financial Literacy Survey found that only 57 percent of adult Americans understood basic financial literacy concepts such as interest compounding, inflation and risk diversification. As a result of this lack of financial literacy, we too often we make financial decisions without understanding the full financial ramifications.
This is how millions of dollars of African American wealth were destroyed in the Great Recession as thousands of blacks took out adjustable-rate mortgages, which later decimated their financial lives. In his Atlantic article, Neal Gabler discusses how he took money from his 401K account to help pay for his daughter’s wedding. The penalties and lost wealth accumulation associated with such a move can be devastating and has surely contributed to Gabler’s poor financial state of affairs. Once you gain a little financial knowledge you can better avoid the landmines that destroy financial health.
BMWK, could you come up with $400 for a financial emergency?