A large percentage of average Americans are broke the Federal Reserve System reports. America’s central bank estimates that many Americans have little or no money.
Highlights of the Board of Governors of the Federal Reserve System’s Report on the Economic Well-Being of U.S. Households in 2018 include:
- 25% of US adults live in households with a family income of less than $25,000 a year.
- If the Board of Governors’ estimate is correct, the average member of out of four Americans households has an income of $9,881 a year. To clarify, $25,000 divided by 2.53; Statista’s estimate for the average American household size in 2018, is $9,881.
- 37% of American adults lived in households with an annual family income of under $40,000.
- Consequently, 37% of Americans could have an income of $15,810 a year. To elaborate, $40,000 divided by 2.53 is $15,810.
24% of American Working-Age Adults are Not Working
- 27% of American adults between 18 and 29 received financial support from friends or relatives. In plain English they had to borrow money from family to survive.
- 24% of prime working-age adults in the US were not working during 2018.
- Three out of 10 adults report their income varies during the year.
- One out of 10 adults experiences wide fluctuations in income during the year.
- Two out of 10 adults say they want to work more but cannot.
17% of Americans cannot pay their bills
- 17% of American adults admit they cannot pay all of their current month’s bills.
- 12% of American adults admit they could not pay their bills if they face a surprise expense of $400.
- 61% of Americans admit they lack the cash to cover an unexpected expense of $400.
- 25% of Americans admitted they skipped medical care because they could not afford it.
- One in 10 adults admits to receiving financial support from friends or relatives.
- Over 25% of black Americans admit they cannot qualify for a new credit card.
Americans think they are doing better than they are
Strangely the Federal Reserve found 75% of American adults say they are doing “okay” financially. In addition, 56% of American adults claim they are
”better off financially” than their parents were.
However, economist John F. Early of the conservative Cato Institute found: the middle-income group averages only 20 percent more spendable income than that of the lowest group.” In plain English, Early finds middle-class Americans have slightly more money than the working class.
So why the discount between the economic reality and attitudes?
Illusory Superiority Explains why Americans cannot admit they are broke
The answer is rooted in behavioral science which finds humans could be hard-wired to overestimate their resources and capabilities. Interestingly, psychological scientists report most people overate their abilities and believe their skills are above are above average.
For instance, psychological scientists Michael M. Roy of Elizabethtown College; and Michael J. Liersch of New York University, found that most people rate themselves as above average drivers. The two fund most people gave their driving a seven out of 10 rating in a study for the Journal of Applied Social Psychology.
Anybody who spends any time on America’s roads knows this attitude is delusional. In fact, US traffic fatalities have risen by 14% since 2014, exceeding 40,000 in 2018, the National Safety Council estimates. Thus, many Americans are bad or dangerous drivers, even though they consider themselves “above average.”
Not surprisingly, the same Americans who overestimate their driving abilities, overestimate their moneymaking abilities. Additionally, traffic fatalities show most people underestimate the risks in everyday activities. Thus, Americans underestimate the risks their low incomes produce.
There is a whole field of study on this phenomenon social psychologists call illusory superiority. Illusory superiority could explain why who those don’t have $400 claim they are doing okay financially. Most people, over estimate their financial resources and underestimate the economic risks their families face.
Americans are on Shaky Ground Financially
Investors, politicians, speculators, policymakers, politicians, and others need to look at Report on the Economic Well-Being of U.S. Households in 2018 because it shows many Americans are on very financial ground financially.
If the Fed’s findings are correct, any recession or economic downturn could throw tens millions of Americans into poverty. Consequently, America could experience the return of mass poverty, like that seen in the Great Depression.