41% of Americans don’t have $400 cash to cover an emergency but 50% of them are taking exotic trips???
A shocking revelation was published last week. According to the Federal Reserve Board of Governors nearly half of Americans don’t have $400 in cash to cover emergencies.
The Federal Reserve Board of Governors released its report on the Economic Well-Being of U.S. Households. The report composed a survey of 11,316 American households. The purpose of the survey was to take a sample that would accurately reflect the American Household. Lower income (those below 40,000 per year) and households earning high income (those above $100,000) per year were sampled. The distribution was applied evenly across different demographics to reflect balance of the American Economy. Sample distributions such as the one adopted by the Federal Reserve Board of Governors typically represent a +/- 10–15% standard deviation. So the results could be understated 10–15% or overstated 10–15%. Typically the medium is the survey results. Regardless, it is a startling revelation to discover liquid cash resources are less than $400 for a significant portion of our US population.
The report implies 40% of Americans can’t afford a $400 expense without accessing credit. If we consider the implications of the report, many households are a single event — such as a car break down or an Air Conditioning Unit Replacement — away from dire financial straits without credit access. I write significantly about devaluation of money, and workers earning about 1/3 of our grandparent wages (when you factor in inflation, currency expansion, living cost increases and costs of goods). These factors also contribute to cash asset evaporation.
Based on a survey of 11,316 American households, the report details the following:
“If faced with an unexpected expense of $400, 61 percent of adults say they would cover it with cash, savings, or a credit card paid off at the next statement — a modest improvement from the prior year. Similar to the prior year, 27 percent would borrow or sell something to pay for the expense, and 12 percent would not be able to cover the expense at all.”
The most important factor is people who responded are not just low earners. According to data from the Survey of Consumer Finances, 46% of American households earning more than $80,000 carry significant credit card balance. A powerful 2016 essay in the Atlantic by Neal Gabler describes how upper middle class often lives paycheck-to-paycheck and have become the high-earning poor.
Gabler describes the factors that contribute to this are unobtainable lifestyles, spending that exceeds earnings, and financing purchases that would otherwise be unobtainable at current wages. For others it is a choice about how they want to allocate their money. The mind state of the average American is, “Why save for small, financial emergencies when you can put it on a credit card?”
High consumption lifestyles, social media imagery and stagnate wages have created the highest earning poor in the history of modern America.
Combined with another survey published by Deloitte in 2018, which states the average Millennial has a net worth of $8,000 — you start to understand the dire straits of America. Modern human psychology shows as long as a person enjoys the use of something — they don’t need to actually own it. The creation of subscription services, membership clubs, and low cost streaming services is a response to the “Use it don’t own it” mind state Americans have accustomed themselves to. Without easy credit it is feasible that 1/3 of Americans would find their lives flipped upside down.
Beyond the educational point of the article there is interesting revelations about how to manage, expand and market an emerging business.
Professional Entrepreneurs are not just innovative thinkers coming up with exciting business concepts. Professional Entrepreneurs are in depth market analysis experts who take advantage of market gaps.
The current market gap is recognizing that ownership of assets is not important to the average consumer — the privilege to enjoy is priced at premium.
I would argue that the best business models for our consumer class of customers revolve around temporary usage. Marketing concepts showing temporary gratification without long term commitments is the current mind state of consumers. Understanding their poor liquidity, inability to access cash, and the importance of credit shows merchant processing is a must. Without merchant processing sales will lag. Obligating customers to long term commitments plummets sales. Pricing things for ownership results in standing inventory.
As dismal as the state of our consumers are — there is opportunity in every market. The lesson is Professional Entrepreneurs are individuals who recognize “how” to adapt. Lack of perception results in lack of wealth. Discover new opportunities, more middle space market applications, and more by following me on Medium or signing up for my quarterly newsletter.
To your wealth success!
About Christopher: Christopher Knight Lopez is a Professional Entrepreneur. Christopher has opened over 7 businesses in his 14-year career. Christopher’s purpose is to take advantage of various market-driven opportunities. Christopher is a certified Master Project Manager (MPM) and Accredited Financial Analyst (AFA). Christopher previously held his Series 65 securities license. Christopher also has his General Lines — Life, Accident, Health & HMO. Christopher has managed a combined 286mm USD in reported Assets Under Management & Assets Under Advisement. Christopher has work experience in 29 countries, raised over 50mm USD for various businesses, and grossed over 7.5mm in his personal career. Christopher worked in the highly technical industries of: biotechnology, finance, securities, manufacturing, real estate, and residential mortgages. Christopher is a United States Air Force Veteran. Christopher has a passion for family, competitive sports, fishing, martial arts and advocacy for entrepreneurs. Christopher provides self-help classes for up-and-coming entrepreneurs. Christopher’s passion to mentor comes from belief that entrepreneurs need guidance. The world is full of conflicting information about entrepreneur identity. See more at www.christopherklopez.com.