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Just last week, the FDIC’s National Survey of Unbanked and Underbanked Households revealed that the number of unbanked U.S. households has reached the lowest point since the survey started in 2009, with just 6.5 percent designated as unbanked and 18.7 percent as underbanked. Advances in technology – particularly mobile tech – have given people more access to financial tools than ever before. Meanwhile, the news is dominated by reports of the overall strength of the U.S. economy. By all accounts, we should be celebrating. All traditional signs point to wealth, health and prosperity.

But what if we took a more honest, concentrated look at the real stories behind the statistics?  We have been so focused on the macro data sets that we fail to see the nuance behind the numbers – the data that suggests that a massive number of people in America are struggling to build and maintain healthy financial lives. We have been measuring elements that only tell part of the story. To affect real change, we need to uncover what we haven’t been seeing.

Taking America’s Financial Health Pulse

CFSI started its journey to understand the needs of financially struggling Americans over a decade ago, with a focus on traditional barriers to financial services access. What we realized over time is that access is not the sole catalyst for improving financial lives, and that a complex ecosystem comprised of providers, policymakers, social services and other organizations plays an important role in one’s ability to achieve true financial health.

Our early research, including the U.S. Financial Health Diaries and the Consumer Financial Health Study, helped uncover the reality of millions of Americans who were struggling with some, if not all, aspects of their financial health. The industry took note, and the challenge of financial health has become part of strategic conversations over the past few years. However, we’ve also heard consistently that, while organizations have added measures or products to address financial health, no one has taken a holistic look at the full scope of the problem, or the specifics of the customer segments it affects.

In our latest effort to advance the understanding of financial health in America, CFSI partnered with Omyidar Network, MetLife Foundation and AARP, to look beyond the headlines and take the financial health pulse of the nation. The 2018 baseline report from the U.S. Financial Health Pulse is the first annual benchmarking survey that looks at the composite financial health framework of those living in the U.S., based on the financial systems that allow people to manage finances, be resilient and pursue opportunities over time–specifically how they spend, save, borrow and plan.

Only 28 Percent

According to the initial results from the U.S. Financial Health Pulse, many people are struggling financially; in fact, only 28 percent of Americans are financially healthy. Many lack short- and long-term savings, and more than half (55 percent) are struggling with some, but not all, aspects of their financial health. Other notable takeaways from the report include:

• Nearly half of Americans (47 percent) spent more than or equal to their income in the last 12 months;
• More than a third of all people in America (36 percent) are unable to pay all of their bills on time;
• Nearly one-in-five Americans (17 percent) are considered “financially vulnerable,” and almost half of these individuals (45 percent) have less than one week’s worth of expenses saved; and
• Nearly a third of Americans (30 percent) say they have more debt than is manageable.

Trends Impacting Financial Health

While low unemployment and an increase in consumer spending paints a rosy outlook, this deeper dig into the data reveals that today, Americans are collectively saddled with $13 trillion in total household debt, more than $1.5 trillion in student loan debt, and a deficit of up to $14 trillion in retirement savings. The daily systems that help people build wealth and resilience and pursue opportunities are more fragile than ever, with many Americans just one or two unexpected events away from a financial crisis.

The report highlights three macro trends that are at play: a generational prosperity gap, increasing costs of living, and workplace instability. Specifically, individuals who struggled financially growing up are less likely to be financially healthy today than those who did not struggle financially. This generational prosperity gap will continue to challenge the people affected, without additional tools, resources and a broad commitment from industries as a whole to help them succeed.

Additionally, this financial stress has impacts on physical health. Many Americans report avoiding medical care or taking less prescription medicine than directed because of escalating costs, and 59 percent of those surveyed also said they had worried about putting enough food on the table for their family over the last 12 months.

Likewise, while inflation continues to rise, overall wages are not increasing, and many more people have part-time or less traditional job situations that often do not provide steady income streams. Combined with the high cost of basic living expenses, more Americans are struggling to lead financially healthy lives. Americans who experience this workplace instability are falling behind as they strive for financial health.

Healthy, Coping or Vulnerable

This first report from the U.S. Financial Pulse also examines eight indicators of financial health, encompassing how people spend, save, borrow and plan, to paint a complete and robust picture of Americans’ financial activity. Based on these indicators, Americans fall into three segments: Financially Healthy, Financially Coping or Financially Vulnerable:

• People are Financially Healthy when they spend less than their income, are able to pay all of their bills on time, have sufficient short- and long-term savings, have a sustainable debt load, have a prime credit score, have appropriate insurance policies and can plan ahead for the future. The reports shows that only 28 percent of Americans are financially healthy.
• People who are Financially Coping struggle with some, but not necessarily all, of the indicators of financial health. They spend somewhat less than they make, pay most of their bills on time, have savings to cover a few months of living expenses, have mostly manageable debt loads, have average credits scores, are somewhat confident they are on track to meet their long-term financial goals, have appropriate insurance policies and try to plan ahead financially. Fifty-five percent of those surveyed fall into this category.
• People who are Financially Vulnerable, noted as 17 percent, struggle with all, or nearly all, of the indicators of financial health. They spend about equal to, or a little more than, their income, only pay some bills on time, have less than a week’s worth of living expenses saved, are not confident in their ability to achieve long-term financial goals, lack appropriate insurance policies, carry more debt than is manageable with subprime credit and are unable to plan ahead financially.

What’s Next

The methodology of the U.S. Financial Health Pulse, based on the CFSI Financial Health Score®, will allow stakeholders to track changes in financial health year-over-year, and to align our efforts around a common set of goals for developing, deploying and measuring solutions that will improve financial health. Starting in 2019, CFSI will be working with engineers and data analysts from Plaid to collect and analyze transactional and account data from study participants who authorize it. We also plan to make the survey data from the 2018 baseline study available to academics and researchers tracking the financial health of people in America.

Providing the data is a start – a way to open our eyes to the true picture of the financial lives of Americans. But the bigger story is what comes about when stakeholders have real data to measure against. We invite you to join us in using this data to understand and enhance the country’s financial health.

Jennifer Tescher is President & CEO of the Center for Financial Services Innovation (CFSI).

Image courtesy of Pixabay.