Consumers’ Financial Fragility Remains Perilous

Data that was released this week by the Federal Reserve Board of New York reminded me of a great line I remember from the original “Men in Black.” Tommy Lee Jones is trying to explain to Will Smith why everyone in the world has not been told that there are aliens coming and going from Earth like they are dropping in for a coffee at Starbucks. He says, “A person is smart. People are dumb, panicky dangerous animals and you know it. Fifteen hundred years ago everybody knew the Earth was the center of the universe. Five hundred years ago, everybody knew the Earth was flat, and fifteen minutes ago, you knew that humans were alone on this planet.”

What made me think of that was the results of a regular survey conducted by the New York Fed related to how financially fragile consumers think they are. As of October, only 30% of consumers said they expect they are going to need $2,000 to cover some kind of emergency in the next month. That is the lowest number recorded by the survey in the past five years and indicates that consumers feel like they are on relatively solid ground and that there are no surprises lurking in their financial future. And that is a good thing, because only 65.6% of consumers said they could come up with that kind of scratch if they needed it. And like its cohort, that figure is the lowest it has been in the past five years. But that is less of a good thing.

Interestingly enough, it was people in between the ages of 41 and 59 who felt they were least likely to be able to come up with $2,000 if they needed it. Only 61% of participants in that age group responded positively, compared with 68% of people under the age of 40 and 69% of those over the age of 60.

So what do you take away from the fact that most people do not think they are going to have a financial emergency, but would be unable to afford it if they do? I know that sounds like the situation that most people across the country are dealing with at any given moment and not just in the midst of a pandemic. What I think is interesting is the gap between the two numbers, meaning are there more people who are expecting a financial emergency and will not be able to pay for it. For now, that delta — 35.6 in October – is shrinking from previous quarters, which is likely a good thing. It might be worth collectors adjusting their scripts to be more mindful of the fact that there are likely fewer people who can afford to make large payments right now, if there are agencies that have not already done so.

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EDITOR’S NOTE: The following article was originally published by Jamie Welsh at Harvest Strategy Group and is re-published here …

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