In discussions with 30 Americans unable to pay all of their bills, a clear pattern emerged: Most were able to eke by until they faced an unexpected crisis such as a job loss, car trouble or storm damage.
The extra expense caused them to get behind on their bills, and they never fully rebounded. Economists fear such precarious financial situations put many Americans at risk if there is even a mild setback in the economy, potentially setting up the next recession to be worse than anything in recent history except the Great Recession.
“So many Americans are living paycheck to paycheck,” said Signe-Mary McKernan, vice president of the Center on Labor, Human Services and Population at the Urban Institute. “We are headed toward a political crisis, if not an economic one.”
Their vulnerability is due to a confluence of factors. First, the average American family has yet to recover fully from the 2008 financial crisis, the Federal Reserve found, leaving half the nation with a diminished cushion to handle surprise expenses — or the next downturn.
The bottom half has less wealth today, after adjusting for inflation, than it did in 1989, according to Fed data through March of this year. While wage growth has accelerated in recent months, especially for the lowest-paid workers, families who have struggled for years have a ways to go to return to solid footing.
Half of U.S. jobs pay less than $18.58 an hour and more than a third pay less than $15, which makes it difficult to save or invest for a better future.
Trump and his team argue that a strong economy is lifting more and more Americans up financially, including blue-collar workers, the formerly incarcerated and minorities. In contrast, Democrats are calling for major expansions of government programs to address inequality. How to help the economically vulnerable is likely to be a key debate in the 2020 race.
“Just because folks on Wall Street think things are fine doesn’t mean most Americans feel like things are fine,” said Ray Boshara, director of the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis. “When every day is a rainy day for millions of families, things are not fine.”
To get by, Americans have borrowed heavily in recent years. Total U.S. household debt is now $13.7 trillion, surpassing the 2008 peak in dollar terms, according to the Federal Reserve Bank of New York. The surge in debt this time around is for cars and college, not mortgages.
Older and wealthier — and usually white — Americans typically take on debt to buy homes or make investments that are likely to make them richer in the years to come. Most in this category have recovered the wealth they lost in the Great Recession as home prices and stocks have soared.
In contrast, data from the Fed and the credit-score company Equifax show that families of color, Americans born after 1970 and households earning less than $60,000 are the least likely to have recovered the wealth they lost in the crisis. And they tend to carry heavy debt loads, often taking out loans for college, which they cannot get rid of in bankruptcy, or loans to pay bills, which can put them further behind.
The prevailing view among Wall Street investors and Washington policymakers is that there is little to worry about because student loans are backed by the government and delinquency rates for other kinds of debt are fairly low, meaning most people can make their monthly payments.
“Credit quality is about as good as I’ve ever seen it,” said Mark Zandi, chief economist at Moody’s Analytics. “There is nothing that suggests inordinate stress on low-income households . . . certainly nothing compared to times past.”
But Boshara, of the St. Louis Fed, pointed out that credit card and auto loan delinquencies have risen this year, the opposite of what Wall Street expected in good economic times.
Four in 10 Americans say they still struggle to pay their bills, despite the strong economy, according to a quarterly survey by UBS that has shown no improvement since 2014. And looking at how households are doing by class, race or age reveals a concerning picture.