50% Of Americans Live Payday-To-Payday; 33% Can't Write A $500 Emergency Check

Tyler Durden's picture

It's been more than seven years since the 'great recession' officially ended, but while Fed policies have successfully generated massive asset bubbles which have accrued solely to the benefit of America's wealthiest, the majority of American families remain as vulnerable to financial disaster as they were during the height of the crisis.

In fact, a recent study found that some 50% of Americans are woefully unprepared for a financial emergency with nearly 1 in 5 (19%) having absolutely no savings set aside to cover an unexpected expense.  Meanwhile, nearly 1 in 3 (31%) Americans couldn't write a $500 check to cover an unexpected household emergency expense if they had to, according to a survey released by HomeServe USA, a home repair service.

Moreover, a separate survey released Monday by insurance company MetLife found that 49% of employees are “concerned, anxious or fearful about their current financial well-being” with less than 40% reporting that they're "in control" of their finances.

 

If you're like us, then perhaps you're confused by how the information above jives with the Fed's assertions that 'everything is awesome' which seems to be reinforced by new daily highs in equity markets. 

Of course, the issue is that the overwhelming majority of Americans haven't participated in the Fed's latest asset bubbles and are instead still crippled under the same amount of debt as they had during the recession. In fact, the New York Federal Reserve on Monday predicted that total household debt will reach its previous peak of $12.7 trillion this year with lower mortgage balances being offset by much higher student and auto debt.

 

For evidence of 'main street' America's struggles with soaring debt balances, one has to look no further than the shocking delinquencies of 2016 vintage subprime auto ABS structures which are underperforming even 2007/2008 vintage securitizations.

 

And while most have attributed the rising delinquencies solely to deteriorating lending standards and an increasing mix of 'deep subprime' loans, UBS Global Macro Strategist, Matthew Mish, thinks there is a better answer, namely failed Fed policies. 

As we've also argued over the years, while the Fed's misguided QE and interest rate policies have done a masterful job of creating asset bubbles around the world they've done precious little to actually stimulate economic/wage growth, in real terms.

In our view, the root causes of the rise in delinquency rates can be traced back to US consumer income inequality and aggressive easing in lending conditions, primarily from non-bank lenders. In short, the mosaic we see is one where central bank reflation efforts, namely QE and low interest rate policies, have been more successful at fuelling higher asset prices and wealth creation for a subset of the consumer and less effective in stimulating real income growth (particularly at the median and below). Wealth creation becomes self-reinforcing in an environment of financial repression, with more cash looking for opportunities for deployment. For the financial sector that means more loan growth, and many less regulated, non-bank financial intermediaries have happily filled the void, incentivized by low interest rates that help sustain a lower cost of capital for themselves and lower funding costs for their borrowers.

 

However, the overall credit quality of borrowers has not kept pace with improvement in the aggregate economy. Our prior Evidence Lab work posits that about 38% of US consumers do not generate positive cash flow and roughly 25-30% of US consumers have not seen improving consumer finances (i.e. they do not own their own home or have significant wealth tied to stock markets). As of Q4'16, 18% of US consumers indicated they were likely to default on one loan payment over the next 12 months vs. 13% in Q3'16. This cohort of at-risk consumers reported being about 4x as likely to embark on a major durable goods purchase (e.g. house, car) in the next year.

 

This is not just a theoretical issue, but perhaps a problem already. 37% of those aged 21-34 in Q4'16 stated they were likely to default on one loan over the next 12 months, up from 27% in Q3, and outpacing other age brackets. We have only asked this specific question twice before in our Evidence Lab Survey and will be keen if these trends continue in our Q1 survey

 

And while the subprime auto market, on a standalone basis, may not represent the 'systemic risk' that subprime housing did in 2007, when combined with outstanding subprime balances on student loans and other types of debt it's a $1.3 trillion issue.

Is subprime auto lending too small to matter from a financial stability point of view? In isolation, yes. According to TransUnion, subprime auto lending balances outstanding total $179bn, or 16% of all auto loans outstanding. And subprime balances are about 1.2x above balances as of Q3'09. However, our earlier thesis would suggest subprime auto may be too narrow a lens to view the debate. More broadly, the good news is that subprime mortgage debt outstanding totals $567bn, or 7% of all mortgage loans. Subprime balances are about 0.4x 2009 levels. The bad news is subprime student loans balances total $370bn, or 30% of all loans outstanding. And balances are 2.3x 2009 levels. Subprime credit card debt totals $113bn ($88bn bankcard, $25bn private label) – reflecting 12% and 20% of all loan balances, respectively, and about 0.8x 2009 levels. And subprime personal loan balances total $17bn, or 16% of all debt, and 1.1x levels seen in 2009 (Figure 7).

 

In short, we estimate subprime consumer debt outstanding totals a still significant $1.25tn, comprised primarily of mortgage, student and auto loans.

 

But, as UBS concludes, the next massive subprime debt unwind won't be that big of a deal because this time around all of the risk has been laid off on taxpayers...

Comparatively, however, debt levels outstanding are down from 2009 peak levels near $1.9tn. In addition, loan loss risk is increasingly borne by the government (e.g., student, FHAbacked mortgage loans), not the banks.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
J S Bach's picture

Those 33% can definitely write that emergency check... it's just that it'll bounce.

stinkhammer's picture

too broke to even pay attention

techpriest's picture

Damn, takes me back to the lowest point of my life. But, I was irresponsible, and fortunately got the horns in such a way that my life sucked for a year. but after that I have never been in a position where I could not come up with $1000. Even when my wife and I were earning $12 and $9 - I just did not want to be in a position of choosing between fixing the steering column and eating again.

JackT's picture

Sadly, probably 89% don't know how to write a check.

tc06rtw's picture

   
 …  It’s their OWN FAULT  for not being patriotic
          enough to borrow money & buy stocks.
   

Droll Troll's picture

   
   Even  banana vendors  are
       smart enough to do that.
   

stacking12321's picture

banana vendors, good reference!

in another decade or two, we won't have to worry about checks, they won't be around - to make a $500 payment, you'll just enter the bitcoin wallet address you're sending to, the amount of 0.0001 bitcoins, and hit "send".

AlaricBalth's picture

Amscot will cash your $500 personal check for you. What's the problem???

:-)

chubakka's picture

its a V shaped thing only the right side is longer than the left side.

1980XLS's picture

Freedom's Just Another Word, for Nothing Left to Lose"

Never One Roach's picture

Wait one second---- bin Bama said "Americans are 'exceptional'" and said "Americans are not deadbeats" ... while Hillary called Americans "deplorable."

However, Gruber (Obama's Obamacare creator) said Americans are stupid.

Gruber sounds right.

Never One Roach's picture
Obamacare architect (Jonathan Gruber): We passed law due to ‘stupidity of the American voter’

 

http://www.washingtontimes.com/news/2014/nov/10/obamacare-architect-we-p...

Maynard G. Krebs's picture

Up vote for the Die Hard with a Vengeance reference!

"I am an exceptional thief!"
-Hans Gruber

benb's picture

Bummer, the character Hans Gruber, was  played by Alan Rickman now dead. Actors like that don't come along every day.

http://www.telegraph.co.uk/news/celebritynews/12099543/Alan-rickman-dead...

Anon2017's picture

"If they have no bread, let them eat cake." - widely attributed to Marie Antoinette.

In modern America, poor people are often the fattest.

 

Economy-X's picture

In America all the things needed for freedom have a price: education, healthcare, a home etc. That would be fine if you could earn enought money to pay, but you can't, so in American freedom costs more than most can pay so people are unfree!

Unfree people are revolutionary people, 2016 was only the beginning as capitalism and freedom is not what it used to be in the land of broken dreams. see: https://www.amazon.com/dp/B06Y16TPS9/ref=sr_1_1?s=digital-text&ie=UTF8&q...

 

algol_dog's picture

Just think how vulnerable this makes the nation. If any action, be it terrorist or major world power, can take out enough significant infrastructure (electric grid, internet, etc.), it would lead to complete pandemonium with the majority of people having nothing to fall back on.

We're like Pearl harbor, eve of December 6th.

Bigly's picture

Maybe. But I cannot believe this stat.  If this is true, how are they driving $50,000+ cars?  The monthly payment is more than that even on 8 year loans. If they were so on the edge, how are they keeping these cars for any amount of time, insurance, registration, property taxes on them, etc.????

We are beyond broke if this stat is true

 

Mtnrunnr's picture

people are fine. they just think they are entitled to the newest iPhone, and they crack the screens having to replace them. they don't do maintance on their cars. they buy new bigass plasma screen tv's they don't need. they pay for cable, heat, electricity (and leave the lights on). Americans have forgotten what it means to save money. there's plenty of fat to cut.

Mazzy's picture

Loans dude.

But they'll never actually own a cent of that car.

My cars, I have only ever bought in cash.  They are useful tools, not much different to me than a really complex screwdriver or a fancy drill.  Too many people have been CONDITIONED to be emotional about cars, and most of them probably think that other people actually care what they're driving.  But literally zero people care what you drive.

I'd rather live in my house on some land than drive a fancy car.   Sounds silly, but to each their own.  Just don't ask me to pay for YOUR food or housing or to take care of YOUR kids (but it's a shame that I'm forced/coerced to).

Never One Roach's picture

The nation IS very vulnerable but Bush and Soweeto bin Bama have ignored the middle class and pandered to 1) bankers; 2) wall street Big Shots; 3) neocons; and, 4) the entitled "diverse" peeples.

The middle class has been the "Invisible Man" in all this with soaring food prices and wage freezes and layoffs, Obamacare, 0.01% yield on any savings he/she happens to sock away and violent crime ridden streets.

Despite the incredible fight from democrats, the media, neocons, Hollywood, etc, i hope trump can start doing SOMETHING for the middle class.

red1chief's picture

Trump will be 3rd on your list soon. 

Handful of Dust's picture

The debt problems will turn from a trickle to a flood into the housing market. My friend own four rentals in the Houston area and two have already defaulted on their rent. He is trying to work with them but said it looks like they are completely broke and won't move until evicted.

Another friend owns a condo rental near the med center there and said so far it has been ok since a nurse rents it but there may be problems there since even MD Anderson is having problems with their revenue stream due to Obama's electronic med record regulations which cost the hospital huge amounts according to their hosp administrator.

This is a harbinger of things to come as people get so desperate they need money for food and other essentials besides housing. Throw in gubmint regulations like electronic med records and we will continue to see the average American slide into thrist world status, not to mention th eoverall fall of our nation.

Bleak after 8 years of Obama failures and lies.

techpriest's picture

In the chance that you do own property, now is a good time to learn square foot gardening and to start turning your yard into a farm. It may not solve everything for you, but it will reduce your bills while improving your health (exercise, sun gets rid of depression and increases Vit. D), which in turn reduces bills more.

DC isn't going to take care of us, so we're going to have to solve problems ourselves.

Stan Smith's picture

+1 and many more Mazzy.

I feel fortunate that I was raised to view a car as a "Get from Point A to Point B" item.    And it wasnt because money was tight.    My father was a Trust Officer and Financial Planner so it wasnt money.    While his peers were driving BMWs and Mercedes Benz's (likely leased as well),  he'd be parking his Subaru (back when they werent so "hip") or his Corolla.   No shit.    Part of that was, HE grew up dirt fucking poor,  and understood the value of a dollar.   His biggest thing was/is (and mine to now) is that a Car is a liability, not an asset.   And viewing it otherwise is really pretty foolish.  

It's not that I have a problem with nice, or even fancy cars.    Outta college I leased one, and I can say that was the first and last time I'll do that.   Cash in full, or enough to only have a loan for 2-3 years.   Beyond that,  it's not a vehicle I should have then.   It's not hard for me to have a good car with that philosophy.  

I have numerous friends who make well less than me that drive (notice I didnt say own) nicer cars.   Sometimes, you cant fix stupid though.

Zorba's idea's picture

WE'RE PAST IF...FIX OUR TOXIC FIAT! END THE FED, END CITIZENS UNITED, TERM LIMIT THESE CONGRESSIONAL WHORES..etc.,etc.,etc!!!

Theosebes Goodfellow's picture

"Scary" comes when they no longer give a shit to pay their bills. That's the point at whixh they simply give up trying to make ends meet. Personally I think that day is not that far away for many.

Raffie's picture

Last month or so was %57 could not write a $500 so things are getting better?

http://lysanderspooneruniversity.com/2017/03/57-of-americans-cant-write-...

onewayticket2's picture

The DNC strategy for the last 50 yrs.   Broke = Dependent = Guaranteed Vote

Mtnrunnr's picture

god damnit. why is everything always partisan with you? 95% of all the banksters I know are huge nutzo republicans. the orchastrators of debt slavery.

red1chief's picture

"god damnit. why is everything always partisan with you?"

 

Answer: Unthinking trolls.

Houses Depreciate's picture

Why are they unable to write a $500 check? Massive mortgage payments.

 

Remember..... Housing is a rapidly depreciating asset that costs you money every day you own it.

Anarchyteez's picture

Remember it? No one can comprehend that truth anymore.

HRH Feant's picture
HRH Feant (not verified) Houses Depreciate Apr 5, 2017 8:20 PM

I bought a modest home in a good neighborhood. After my last refi my mortgage payment is $1000 a month. I was happy to get a 2.8% 30-year fixed interest rate. I top off that payment with an extra $500 to principle every month. I could have gone with a 15-year mortgage, of course.. But the 30-year allows me flexibility. If I want to overpay $500 a month, not a problem. If I have a tight month I have flexibility.

Unless you want to be homeless or live in a tent housing is how civilized people live. If you want to live in a tent, I don't care. Go for it. Or an RV. Or a school bus. It isn't my business.

But most people want to live a few steps up from a homeless shelter or a tent.

I also learned how to save and have an emergency fund. Critical.

Houses Depreciate's picture

Modest or not, if you bought a house in the last 17 years, you lost your ass.

xrxs's picture

Might want to crunch the numbers on that extra principle.

HRH Feant's picture
HRH Feant (not verified) xrxs Apr 5, 2017 8:34 PM

Crunch the numbers how? I like seeing my principle balance reduced. Isn't that the goal?

Bigly's picture

No, i think he means pay down more every month. Knock more off. 

 

HRH Feant's picture
HRH Feant (not verified) Bigly Apr 5, 2017 9:00 PM

My PITI is $1000 a month. I overpay another $500. That adds up.

As for other excess cash I like to put that into silver. I like the KISS method.

JamesBond's picture

Ladies and gentlemen,

The people to whom this article references undoubtly don't have mortgages to pay.  

Welfare and part-timers; its the new working class.

 

jb

Mtnrunnr's picture

it's exactly that kind of "I have to have this to survive" mentality that artifically inflates housing prices. If you weren't afraid of living in a cargo van your housing would be cheaper because 'they' couldn't gouge you.

HRH Feant's picture
HRH Feant (not verified) Mtnrunnr Apr 5, 2017 9:07 PM

Dude I grew up as poor trailer trash. You missed my post where I discussed growing up with 5 women and 1 man and once the TP was gone we all used different colored towels in the bathroom.

I spent a summer on an organic farm and lived in a converted 9 foot by 9 foot chicken coop. It was cool, built by hippies. 81 square feet and a pit toilet up the hill. So don't get me started on how to live the simple life or how to live poor. Been there, done that.

My little house isn't the fanciest in the neighborhood. It isn't a horrible neighborhood either. I could easily rent out my house, now, for $1400 to $1500 a month.

I don't want to live in a tent or an RV or a trailer. Done that and it sucks.

I am a fucking survivor and will outlast you or anyone else on this forum, fuckwad.

Mtnrunnr's picture

I'm not knocking you directly. It's a mass consumer mentality that we've all adopted. they WILL gouge you until you can't afford it anymore. 30 mortgage? really? how many jobs have dissapeared in the last 30 years. how many professions do you know that still exist in the same way? nearly none. if you ever need to go back to school, if your mill shuts down, if anything happens you are stuck and everyone who has a 30 year won't be able to get out either driving down your home value. I'm sorry you had to go through that but if you're highest priority is living in a house you struggle to afford then you will find yourself fulfilling that necessity rather than saving to pay more of a down payment to avoid living month to month.

 

HRH Feant's picture
HRH Feant (not verified) Mtnrunnr Apr 5, 2017 10:02 PM

I agree. Lots of folks shouldn't own houses.

I don't live in a house because I think it is the thing to do because everyone else is doing it. I live in a house because it is cost effective for me and the numbers work out.

There is no way I could rent a house like the one I own for $1000 month in my area. I don't live in a palace. It is a basic 2 bedroom / 2 bath / 2 car with HOA and landscaping for a decent price.

I don't think anyone should buy a house unless they have 3-to-6 months in cash savings. In case of an emergency.

Our little friend, the house hater, keeps pointing out the hidden expenses of home ownership. I agree. There are hidden expenses. There are also hidden expenses if you are a renter!

People need to know their own temperament, their own short and long term goals, and be realistic.

I realized many years ago that I would have to learn to multitask and create my own work / jobs. Thank god I have a number of talents, as a writer and an artist. People need to created secondary income flows / streams based on their personal interests.

Houses Depreciate's picture

Housing depreciation is eating you alive.

Professorlocknload's picture

Landlords house is depreciating too,,,,and he's writing it off against rental income. Sweet.