If you lost your job, or your spouse or child suddenly got sick, how would you manage financially? Well, for too many Americans with little saved up in cash or other liquid assets, that kind of crisis could spell financial devastation.
The phrase "liquid asset poverty" doesn't exactly roll off the tongue. Nor does the obtuse wording intuitively convey the grim financial message that lies at the heart of it. The term was coined by the Corporation for Enterprise Development, or CFED, a non-profit that works to increase financial security for low-income families.
It means having insufficient liquid assets — those that can quickly and easily be converted to cash-in-hand, like checking and savings accounts, stocks, mutual funds and IRAs — to exist at the poverty level for three months in the event of loss of income. More simply, it means not having enough money to pay the bills in the event of any kind of household financial crisis, whether that be the layoff of a primary wage earner or something equally financially debilitating, like an unforeseen medical bill. For a family of four in 2011, liquid asset poverty meant having less than $5,887 available to see them through three months without income.
That isn't much money, but according to a scorecard compiled by the CFED, 43.5 percent of American households don't have enough of a safety net to meet even this bare-subsistence threshold. In Alabama and Mississippi, more than 60 percent of households don't meet it, based on 2011 data. In Nebraska and Iowa — two of the states with the lowest percentage of households in liquid asset poverty —more than a quarter of households fall short.
For the richest nation in the world, these statistics are worrisome, a fact not lost Janet Yellen, chair of the Federal Reserve. The central banks tracks household wealth and balance sheets, and it recently reported that the overall net worth of U.S. households rose to a record $81.5 trillion in the second quarter of the year. Those gains, though, have not been spread across the income spectrum — and the median household net worth has fallen 2 percent since 2010.
“We have come far from the worst moments of the crisis, and the economy continues to improve,” Fed Chair Janet Yellen said in a recent speech to the CFED, "but the effects of the recession are still being felt by many families, particularly those that had very little in savings and other assets beforehand.”
Americans are also famous non-savers, which didn't help matters when the economy nosedived and the housing market collapsed.
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