Lack of financial cushion hurts economy

Many don’t have assets to cover three months without income.

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By Randy Tucker, Staff Writer 10:43 AM Saturday, February 4, 2012

More than a quarter of Ohioans have to watch nearly every penny they spend, leaving them vulnerable to financial emergencies and stifling the state’s economic recovery, which relies heavily on consumer spending, according to a recent report from the nonprofit Corporation for Enterprise Development, which has studied the financial security of U.S. households for the past decade.

Researchers found just more than 27 percent of Ohio households had little or no financial cushion to fall back on in case of job loss or other loss of income, ranking the state No. 37 for the overall financial security of its residents.

By comparison, about 43 percent, or 128 million, U.S. households are what researchers termed “liquid asset poor,” meaning they own a home but don’t have enough savings or easily convertible assets to cover expenses for at least three months.

Excluding homes and cars, the asset poverty rate increases to 43.6 of Ohio residents, according to the report.

Most of the households studied were led by people earning a regular paycheck, said Kasey Wiedrich, lead researcher for the report. But in a financial pinch, they’d have few options besides high-interest emergency loans or a drastic cutback in spending on essential items, such as food and gas.

“For families to get ahead, you have to have the income, of course, but at the same time you need assets,” Wiedrich said. “If you don’t have that savings and something happens, you could be one or two paychecks away from a catastrophe.”

In addition, “you won’t have enough to send your kids to college, buy a house or do those things that will help you and your children move ahead economically.”

The CFED survey results underscore the latest index of consumer attitudes from the Conference Board, which showed consumer confidence on a scale of 1 to 100 fell to 61.1 in January from 64.8 the month before.

Melodee Sheils, director of Consumer Credit Counseling Service of the Miami Valley, blamed stagnant wage growth and overwhelming debt accumulated in the easy credit era preceding the recession for the financial insecurity of many residents.

And prolonged unemployment and under-employment have exacerbated the tenuous financial situation for many local households, Sheils said. She said many of her clients have been forced to rely on their credit cards to pay bills.

“They’re hitting the brick wall sooner, in terms of having to use their credit cards to live on,” Sheils said, noting that while the unemployment rate has dropped significantly, the number of long-term unemployed has remained near historical highs.

The desperation of many of those families is reflected in the sharp decline in the number of people seeking financial counseling, which has been a trend locally and across the country in recent months, she said.

“With the economy the way it is, you would think people would be knocking our doors down,” Sheils said. “But people ... need their credit cards to live on.

“The unsecured debt is the thing they’re prioritizing last because they’re still trying to keep a roof over their heads and food on their tables.”

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