High debt, lack of assets and low financial literacy contribute to the problem, according to GW researchers.
Roughly one in three Americans is financially “fragile,” which means they could not cope with an emergency expense, such as a medical bill or car repair, in a short amount of time, according to new research by the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University’s School of Business.
Specifically, Americans who are considered financially fragile are those who say they probably or definitely could not pay an unexpected $2,000 expense within a month if needed in an emergency.
Researchers identified three main factors for this fragility, including high debt; lack of financial assets, such as home ownership, insurance coverage or a retirement account; and low financial literacy.
“Financial fragility does not mean simply lack of precautionary savings,” said Annamaria Lusardi, academic director of GFLEC and GW professor. “Both sides of households’ balance sheet matter. Heavy indebtedness can also make individuals financially fragile.”
Although a majority of people who are financially fragile are also low-income, almost 30 percent of middle-income households and 20 percent of high-income households are, too.
Financial fragility affects all age groups at comparable levels. However, men and those with a higher education level, such as a bachelor’s degree, are less likely to be financially fragile than women and those with less education, according to the research.
Some solutions could help combat financial fragility, researchers said.
“Initiatives such as incentivizing short-term savings and requiring financial education in school and the workplace can be important steps toward increasing financial resilience,” Dr. Lusardi said.
To make their findings, researchers used survey data complemented by focus group discussions. The National Endowment for Financial Education funded the research.