Monday, January 11, 2010

The State of the American Consumer

The Financial Industry Regulatory Authority (FINRA) surveyed nearly 1,500 American adults, and found that nearly half of respondents have difficulty covering monthly expenses and paying bills. Of these, 14% said it was very difficult to keep their noses above water, and 35% said it was somewhat difficult.

To make ends meet, 9% said they've taken a loan from their retirement accounts during the past 12 months, and 5% have taken a permanent "hardship withdrawal." Only 49% of respondents have a "rainy-day" fund consisting of enough money to cover three months of expenses in case of illness, job loss or other emergencies.

Household expenses during the past year exceeded income for 12% of those surveyed, and were roughly equal to income for 36%. One out of three respondents said they had a large and unexpected drop in income during the past year because of the economic downturn.

Finally, when it comes to financial literacy, 37% thought their financial knowledge was at the top of the scale. However, only 30% were able to correctly answer a basic question about interest rates and inflation, plus a question about risk and diversification.

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