Low-Income Families Have No Financial Safety Net

SAN FRANCISCO--A nationwide poll commissioned by EARN, the nation’s leading provider of matched savings accounts for low-income workers and co-founder of Bank on San Francisco, revealed that over one-third of low-income households are unprepared to cover basic financial needs, if there were no outside source of money.

“While these successes represent an important and monumental shift in the right direction, a more comprehensive package of policies is needed to effectively enable a broader range of financial opportunities for low-income consumers and increase access to financial services.”
Among households earning $35,000 or less annually, a staggering 36% reported having just enough to meet basic financial needs for one month if income is disrupted. In addition, only 14% and 8% of low-income participants indicated being prepared to cover basic financial needs for a period of two and three months respectively. This national poll reveals that American households overall are better prepared than the low-income segment to weather circumstance such as a job loss or catastrophic illness, with a majority (51%) of households nationwide reporting having enough savings to cover basic expenses for more than three months.

In 2006, EARN developed the Local Asset Poverty Index (LAPI) for California, the first data tool of its kind to measure asset poverty rates at the local level. Unlike income poverty data, which measures the amount of income needed over the course of a year to make ends meet, asset poverty measures the ability of households to cover its basic needs for a period of three months if income is disrupted. EARN’s data revealed that nearly 29% of Californians were living paycheck to paycheck with little to no savings to rely on in the event of a job loss, medical emergency or an unexpected expense.

Now, EARN’s nationwide data reveals that fully one-third of low-income households are asset poor, meaning that not only can they not cover expenses for three months should their income flow stop, but these households do not have the assets in reserve that are usually used by those in higher income groups to rebound as the economic recovery gains momentum. These findings, which point to long-term stabilization problems for low-income families, supports the necessity of a more comprehensive policy arsenal—at both the state and federal level—to help stabilize savings and increase low-income access to mainstream financial services.

“At a time when state leaders grapple with large budget deficits and propose to roll back funding to vital safety net programs, the Obama Administration and members of Congress have succeeded in passing health care reform, increasing protection to credit card consumers and extending unemployment benefits,” said EARN President and CEO Ben Mangan. “While these successes represent an important and monumental shift in the right direction, a more comprehensive package of policies is needed to effectively enable a broader range of financial opportunities for low-income consumers and increase access to financial services.”

Optimism Over Future Job Prospects

EARN’s national survey found hopeful signs regarding Americans’ thoughts about future job prospects. In general, Californians proved more optimistic than national survey participants, with minorities more confident in the future of American job creation than Caucasians.

64% of national survey participants and 83% of those polled in California believe that job prospects will improve somewhat or very much over the next year. African-Americans were more optimistic than other demographic groups, with 86% feeling things would improve on the job front over the next year compared with 60% of white and 72% Hispanic survey participants. Perhaps surprisingly, annual household income and education levels had little impact on national polling figures.

“The optimism we’re seeing around job growth prospects indicates a psychological momentum that is important for policy-makers to recognize and capitalize upon,” says Mangan. “It may also create an opening for job creation policies which are, in the long-term, supportive of sustainably creating jobs over the next year.”

Survey Research Methodology

These statistics are derived from findings of a telephone survey conducted among a national probability sample of 1,010 adults comprising 506 men and 504 women 18 years of age and older, living in private households in the continental United States. Interviewing for this CARAVAN® Survey was completed during the period April 15-18, 2010. EARN expects to continue conducting national surveys on a host of issues including asset building, saving rates among Americans and personal finance tools for low-income families.

About EARN

EARN is an award-winning California-based nonprofit that gives low-income workers the power to create economic prosperity for their families for generations to come. Since 2001, EARN has helped tens of thousands of low-wage families through innovative financial products including matched savings accounts, checking accounts for the unbanked, micro-loans, and money management coaching. EARN’s powerful combination of lasting assets and financial know-how enables families to build wealth and achieve life-changing goals such as saving for college, purchasing first homes, or starting small businesses. Through its policy and research arm, EARN evaluates its impact and reports on new data regularly, sharing lessons learned and best practices in order to transform the financial services landscape and to champion effective public policies. EARN’s ultimate vision is that millions of well-informed, low-income American families will achieve financial success through proven strategies, fair public policy, and their own hard work. Visit www.earn.org or follow us on http://twitter.com/EarnOrg.