Scary Financial Statistics You Should Know (And Learn From)

“Do not save what is left after spending; instead, spend what is left after saving.”

Warren Buffett

Financial literacy is the ability and knowledge to make informed and effective financial decisions.  It is a challenge for many people to manage their resources to have a financially secure life. We pulled together scary financial statistics from various sources to illustrate how we manage our finances.

There are improvements from the early dark days of the pandemic, but we can always do better in saving money, paying off our debt, and investing in our future.

Growing up in a home that often struggled with money, I have had some financial success but not without self-made challenges and forced errors. The most intelligent people in the world have blind spots when handling money. Being a lifelong learner, I find no shortage of ways I can improve my skills.

The Importance of Financial Literacy Skills

I have either worked in the financial field on Wall Street or taught finance to college students virtually all my career. My goal is to teach financial literacy skills to all who want to learn more through this blog. It is surprising how few financial literacy courses are in high school or even college. Yet, financial literacy is a skill we all need to learn. I always find this statistic scary: 63% of Americans got three or fewer answers (out of a five-question exam) correct on a basic financial literacy test given by FINRA Investor Education Foundation.

According to the National Financial Educators Council (NFEC), the lack of knowledge about personal finance costs Americans over $280 billion a year.

I found compelling but scary financial statistics in eight significant areas in writing this article. As dreadful as the pandemic has been,  the Northwestern Mutual 2021 study reflects better financial discipline among at least one-third of Americans, and 95% of those expect their behaviors will stick.

Among behaviors that people say they’ve adopted to maintain going forward:

• 45% reduced living costs/spending (e.g., canceling subscriptions, eating out less).
• 34% pay down debt.
• 33% increasing investments.
• 29% regularly revisit their financial plans.
• 28% increased the use of tech/digital solutions to manage finances.
• 20% increase retirement savings

Updated Financial Statistics In Eight Key Areas

 

1.  Saving For An Ample Emergency Fund

The pandemic has been devastating to many, and it has not yet fully gone. However, saving for one is not always easy. One financial lesson is clear: the need for an ample emergency fund for unexpected costs.

According to a 2019 Report on Economic Wellbeing of US household survey by the Federal Reserve, 63% of adults could handle an unexpected expense of $400 using cash, savings, or a credit card, an improvement from 50% in 2013. 

The problem is that 15% of those adults put it on their credit cards and pay that amount over time.  You won’t have interest payments by paying the credit card bill in full.  Another 27% would only cover $400 by borrowing or selling something, and 12% couldn’t afford it. Others may sell something, borrow elsewhere, with some using their savings.

The reality is that many Americans often face more significant financial difficulties than $400 when paying for a car repair or a medical bill.  Just 40% of adults would be able to cover the unforeseen amount through savings if the cost rose to $1,000, according to Bankrate’s 2020 survey.

How Much Should You Save for Unexpected Costs?

An ample emergency fund is a “must-have” tool for households to combat these pressures. How much should it be? It is common to believe six months of savings to pay for living expenses is a good start.  During financial crises and when unemployment rises, people may need more protection. 

$2,467 May Be The Magic Amount

Researchers found $2,467 in emergency savings is needed to offset a financial disaster. A study of lower-income households by the Federal Reserve Bank of St. Louis and a Chilean professor determined the amount. About 70,000 households participated with income below 200% of the poverty level.

The median household savings was $70, while a quarter of the participants had zero savings. $2,467 was out of reach for many respondents. Like skipping medical appointments, hardships rose for those who could not come with that amount compared to those who could. While the $2,467 sounds like a big number, it is not out of line with the need to have savings of at least six months of your living expenses covered. Savings rates tend to rise by income.

Living Paycheck-To-Paycheck

A February 2020 pre-pandemic survey by First National Bank of Omaha found 49% of respondents expected to be living paycheck-to-paycheck, and 53% revealed they don’t have an emergency fund.   Living paycheck-to-check means that your monthly expenses devour your monthly income with little to no money left for savings or otherwise.  Budgeting is a must, and 83% of the respondents expected to stick to their budget this year.

Maybe more eye-opening is the June 2021 survey by PYMNTS and Lending Club that found 60% of millennials earning $100,000 a year said they are living paycheck-to-paycheck.

2. Spending Less Than You Earn

To be financially comfortable, you need to spend less than you earn, not borrow to pay your debt. In 2019, annual household income was $68,703 and compared favorably to $64,036 in consumer expenditures. (US Census, Bureau of Labor Statistics).

According to a Gallup poll, budgeting remains an essential tool for households, but only one in three adults have a detailed household budget for their family. A US bank shows similar results, with 41% having a budget ( USBank.com possibility Index).

 Overspending does exist in our society, as borne out by these statistics by The Credit  Examiner and multiple sources:

55% of Americans spend more than they earn. (Association of Young Americans and AARP)

The average American spends $1.33 for every dollar made.

More than 1 in 4 (29%) have more credit card debt than savings. (MarketWatch)

Overspending Can Lead To Excessive Borrowing 

To avoid overspending, understand the differences between your basic living needs and discretionary wants. 

Consider discretionary purchases more carefully if you are overspending. Go with a grocery shopping list and stick to it. When making purchases online, comparison shop, put your buys in a cart, and wait hours or the next day to see if you still must have it. Pre-pandemic, the Federal Reserve Bank of NY found that we overspend by $7,400 annually. When we can’t cover our costs, we use our credit cards, adding to balances that we can’t quickly pay off. 

 

Avoid Impulse Buying

Impulse buying has been a  culprit in overspending. The average consumer spent $5,400 annually on impulse shopping pre-pandemic, often on food and dining. Valassis’s research found 65% of consumers said they’d make an unplanned purchase in the following month. That’s fine if you can afford and pay for it but avoid impulse shopping when you overspend and borrow excessively. 

According to a September 2021 BMO Survey, since April 2021, there has been an uptick in many Americans “worsening their financial situation” due to impulse spending by various age cohorts:

• Ages 25-35 are up 63% from 53%.
• Ages 35-44 jumped to 62% from 55%.
• Ages 55-64 were up to 30% from 21%.  

In Slickdeals 2021 survey, they found revealing spending statistics:

The average American makes about 12 impulse purchases, spending an average of $276 per month, up from $183 per month.

• 62% of respondents report feeling happy after impulse shopping.
• 48% of consumers buy groceries/food as their number one impulse spend.
• 42% of consumers buy household items as their second impulse purchase.
• 40%  of consumers seek clothing as their third most common purchase.

 

3. Retirement Savings

The average 401K retirement plan balance rose to $129,300 in 2Q 2021, while the average IRA  amounts to $134,900, a more than 20% rise in a year. The average 403 b increased to $113,300.

According to the  Bureau of Labor Statistics, 67% of private industry workers had access to employer-provided retirement plans in March 2020. The bulk of those plans (52%) were defined contribution plans only.

Fidelity, which has more than 30 million retirement accounts, reported some positive trends for retirement plans:

Record numbers of workplaces offered managed 401K and 403(b) tax-exempt plans, which grew to 32% of the total percentage of plans.

The average 401K balance and contributions vary by age group. Twentysomethings (20-29 years) have a balance of $10,500 and a 7% contribution rate, while Sixty somethings (60-69 years) have balances of $182,100 and 11% contribution. Early in 2020, Congress removed age limits so that individuals 70.5 years or older could continue contributing to their traditional IRAs. (Fidelity)

Many of Fidelity’s accounts tend to be high net worth holders and may not accurately represent US households.

One in four young people dip into their 401K plans to pay off debt. (CNBC)

66 is the current average retirement age, according to a recent Gallup Poll.

 

A More Realistic View of The Retirement Savings Landscape

The Federal Reserve Report on the Economic Well-Being of US Households in 2020 tells a different story.

The median retirement savings in the US was $65,000 in 2019. While 75% of non-retirees have some savings, 25% of that group does not. Of those saving for retirement, 55% had balances in an employer-sponsored 401K plan. The Fed’s survey found that fewer than 4 out of 10 respondents felt their retirement savings were on track.

The lowest pre-retirement income quartile would need to defer retirement to age 85 before 90% of households have a 50% probability of success. (Employee Benefit Research Institute)

Related Post: Saving For Retirement In Your 20s

4. Net Worth

US families’ median net worth in 2019 was $121,700, a better representative amount than the average net worth of $748,800 (Changes in US Family Finances from 2016 to 2019). Median is the middle point where half of the families have more, and the other half have less. Average net worth is a far rosier number because it skews higher by including the wealthy top 1% as part of the group averaged into one.

The top 1% held 34.23% of US wealth in 2Q2020, compared to 19.46% at the end of 2007, ahead of the Great Recession. (Federal Reserve)

The net worth varies by income, age, race, and asset and liability composition. Having a higher income affords families financial flexibility to have better assets, notably retirement savings, investment accounts, owning a home, net of a mortgage liability. Education and race play a significant factor in net worth, with a college degree and white holding the most critical advantages in growing wealth. The unemployed and underemployed have trouble paying bills and borrowing more, resulting in lower net worth. 

Although net worth is a commonly used benchmark, liquid net worth is a more accurate measure of what you have for big emergencies or even a business opportunity. The calculation strips out assets that may take time to monetize quickly for liquidity purposes but keep the same amount of your liabilities.

5. Consumer Debt

Total consumer debt held by US households in 2Q 2021 was $14.96 trillion, including $10.44 trillion in mortgage debt at the end of June 2021. (The Federal Reserve Bank of New York) The CARES Act benefited those holders of debt–mortgages and students, allowing for delays in payments.

Car Loan Debt

Total car loans were 1.2 trillion at 2Q 2021, or 9.5% of American consumer debt. (Federal Reserve)

Americans borrowed $34,635 for new cars and $21,438 for used vehicles in 2020. (Lending Tree, other sources)

Average monthly car payments vary by plan, with $553 for new vehicles, $397 for used cars, and $450 for leased vehicles in 2020.

The average APR was 9.46% in 2020. The rate often differs by the length of term and credit scores. For those with the highest credit rating, the borrowing was 5.49% compared to 22.66% for borrowers with credit invisible.

Late payments of 90 days amount to 8% of the outstanding auto debt, and another 5.8% is 30 days overdue.

According to ValuePenguin, the typical term length for auto loans is 63 months, with loans of 72 months and 84 months becoming increasingly common.

An average interest rate for a 36-month loan is 4.21%, while a 72-month loan is 4.45%

 

The Length of Your Auto And Mortgage Loan Matters

Typically, the longer your car loan or mortgage term, the higher the amount of interest you will be adding to your purchase before taking your credit scores into account. The higher the credit score, the better the interest you’ll receive within that loan length.

The most extended car loan you used to get was 60 months. Length creep has been pushing upwards as some lenders have offered 84 months or more, and that’s just nuts. Buy a used car or a small car if the monthly payment is too much to handle. We recently bought two used certified pre-owned late-model cars to avoid taking on new debt.

When buying a home, longer mortgages of 30 years remain more common than 15-year loans. The buyer should not ignore the substantially higher interest you are paying for the home purchase. Increasingly, lenders may attract homeowners by term lengths of 20 years and ten years. Here is an example of the financial implications of a 30-year mortgage versus a 15-year mortgage.

Financial Implications For 30 Year Mortgage versus 15 Year Mortgage

Comparing the different loan maturities on a $300,000 loan with a 20% down payment:

• The APR will be higher for the 30-year mortgage than a 15 year one, all else being the same.
• The monthly mortgage payments will be significantly higher for the 15-year mortgage at $2,219 given the shorter period than $1,432 for the 30-years mortgage. If you can afford to pay the higher monthly amount, you are better off with the 15-year mortgage because you pay less in total interest.
•  Assuming you have a 720 credit score, the total home price, including total interest paid and down payment, will be lower with a 15-year mortgage loan.
• The 30-year mortgage cost is much higher because you are paying interest on your loan longer, so the total home price, including a down payment of $75,000, is $375,000 plus $215,609 equals $590,609.
• If you opt for a 15 year mortgage, your total home price or principal  is $375,000 ($300,000 loan + $75,000 down payment)  $99,431 in total interest equals $474,431 for principal and interest.

Housing and Mortgage Debt

The housing market has been a good story during the pandemic as home buyers took advantage of the low-interest environment. It has been a significant beneficiary of our economic recovery since the Great Recession. Recent mortgage statistics reflect a still strong recovery though there have been supply constraints like lumber. Housing purchases are at solid levels as consumers are attracted to historically low mortgage rates. 

Total outstanding mortgage debt was $10.44 trillion at the end of 2Q 2021, accounting for the most significant household expenditure at  69.8% of total consumer debt. That makes sense, as owning a home is often our most important asset.  

Home equity lines of credit or HELOC was $320 billion.

The average mortgage loan rate was 2.80%  in July 2021 (Federal Reserve Bank of St. Louis). That rate was historically low.

The average mortgage balance was $208,185 in 2020.

The average mortgage debt balance was $229,242 at 2Q2021. (Experian)

The share of mortgage balances 90+ days past due fell to 0.5% in 2021, a historic low as forbearance remained an option, and foreclosures mainly were on hold due to the CARES Act until July 31, 2021.

An average down payment is 6% of the borrower’s loan value, which is below the traditional down payment of 20%. (Smart Asset). However, you can buy a home with as little as 3% depending on the loan type and credit score. If you qualify for a USDA or VA loan, you may not have to put down anything.

Bankers have been accepting down payments as low as 1%. I find that statistic somewhat disturbing and may result in hardship for many people who can’t afford their homes.  “History doesn’t repeat itself, but often rhymes” is appropriate whether it was Mark Twain or not.

According to the National Association of Realtors Confidence Index Survey, the larger the down payment, such as 20% on your home, the greater the likelihood of getting a loan at a more attractive rate. Realtors report that 48% of homebuyers made down payments of at least 20% in  1Q2021, up from 46% a year earlier, and 40% in all of 2021.

Could It Happen Again?

Small down payments are too reminiscent of the housing debacle that caused the Great Recession of 2008-2009. Then, bankers made mortgage loans, including the toxic sub-prime mortgages, relaxing requirements on credit histories, and down payments. They justified the lower down payment requirements based on the rising housing prices. We all know what happens when housing prices stop rising and housing values crash in 2008-2009? BOOM!  Today, housing is healthy. But, we have a mixed economic outlook with rising inflation so that a healthy housing market can change. 

The share of homeowners with a mortgage remains in the 62% range. (US Census Bureau)

The median mortgage loan-to-home value for residential real estate was 97.53% in November 2009, dropping to 95% in 2Q2019. (Lending Tree)

 

Student Loans

Recent outstanding student debt was  $1.57 trillion in federal and private debt or 10.5% of total consumer debt with about 45 million borrowers. Private loans account for 7.89% of the total student loans (NerdWallet).

65% of college students took out student loans. While 30% of undergrads borrow from the Federal government, federal loans account for 92.6%. Private loans constitute 8.4% of loan borrowing, with 13% c0ming from private sources such as a bank or credit union. (Educationdata.org)

The average student loan debt is $32,731, with a $393 monthly payment. (Federal Reserve)

The median student loan debt is $17,000, with a $222 monthly payment. (Federal Reserve)

Only 3% of student loans are 90 days or more delinquent or are in default, well below the 11.1% rate pre-pandemic. However, like mortgages, the share of student loans reported as delinquent remains low as most outstanding federal loans were covered by the CARES Act forbearances. 

On the other hand, auto loans and credit card delinquencies continued to decline, helped by the benefit of the federal government stimulus programs and bank-offered forbearance options for troubled borrowers.

Seniors With Student Debt

Over 3 million people age 60+ still have student debt. Of those, 40,000 seniors owe an average debt of $33,800, up 44% since 2010. Those with student debt will be unable to get college tax refunds, social security benefits, and other government payments. The government will garnish these amounts. Potentially losing these benefits is a harsh result for those who are at or nearing retirement. Perhaps it is time to forgive these loans. Roughly 1 in 7 people who file for bankruptcy are 65+ years old, an almost 5-fold increase since 1991 (The Consumer Bankruptcy Project).

Credit Card Debt Can Be Toxic

Credit card debt at $0.79 trillion, or 5.3% of total consumer debt in 2Q2021, reflects a steep decline from borrowers owing more than $1 trillion at the end of 2019. This drop is likely due to continued COVID-related factors and improved spending habits during the pandemic. Americans are still not traveling at high rates, dining out, or entertaining to the same extent as pre-Covid. 

The latest US personal savings rate–personal saving as a percentage of disposable personal income–was 9.4% in August 2021, still above the 7.6% in 2019, but far below the 33.7% in April 2020  at a historical peak rate of 33.7% in April 2020. 

Credit card debt is a relatively small part of total consumer debt. However, if misused by users, credit cards can be far more financially lethal than other types of debt.

Credit Card Statistics:

• About  70% of Americans have at least one credit card, with about 2.7 cards per person on average. 
• The average card balance is $5,525 per person. (Shift Processing)
• Roughly 54% of cardholders carry some kind of balance in 1Q2021. (LendingTree)
• The average FICO score for credit cardholders was 716 in 2020. (FICO)
• The 2Q2021 credit card interest average was 14.61, reported in September 2021. (LendingTree)
• For new credit cards, the average rate was 19.47%.

If used properly, credit cards can be a useful tool for their convenience and ability to not pay for things with cash during COVID. Paying your monthly card bills in full enhances the cards’ benefits without the downside of carrying a costly balance. 

6. Credit reports and Credit Scores

It is essential to review your credit report at least annually. According to a new Consumer Report, 34% of Americans found at least one error on their credit report. 

More than 35% of respondents of a GOBankingRates survey did not know their credit score.

About 21% of Americans have a credit score of 711 or better. (Experian)

Just over 4 in 10 polled felt their credit scores were good enough to achieve their financial goals.

51.2% of Americans renting property do not know they can report utility and rent payments to improve their credit scores. (FTC Study)

 

7. Investing As A Means To Wealth

Even in small amounts, Investing early will be beneficial for you in the long term. It is the best path to building wealth. Yet, many people remain on the sidelines. When stocks dropped significantly in March 2020 due to the coronavirus, it ended the longest bull market, replaced by the short-lived bear market, proving the market’s resilience as stocks bounced back.

Although the stock market is subject to volatility, I remain steadfast in my belief that if you have savings, can pay your living expenses, and have a long-term investment horizon, investing is the path to building wealth. That said, you should learn as much as you can about the market and be financially disciplined by diversifying your portfolio and having a long-term perspective.

In a March 2020 survey, over one-third of adults reported being less likely to invest based on the coronavirus. Only 12% of respondents said they were more likely to invest. (Statista)

The share of adults investing in the stock market has declined from 65% in 2007 to 55% in 2020. (Statista)

The US represented 55.9% of the world stock market valuation in January 2020. (Statista)

In a Bankrate survey released in 2021, Americans picked their long term investments over the next ten years:

• 28% preferred real estate as their best long-term investment choice.
• 25% picked cash and CDs as interest rates remain at record low rates.
• Only 16% picked stocks as preferred investments to hold over ten years.
• 13% pointed to gold and other precious metals.
• 9% would choose cryptocurrencies as a long-term investment, though 61% of Americans are uncomfortable investing in this area.
• Only 4% picked bonds, another 4% picked other investments than these, and 2% did not answer.

Visual Capitalist presented an infographic on the percentage and median value of Americans’ financial assets in 2020. (US Federal Reserve Survey of Consumer Finances):

• 98% of Americans own transaction accounts, such as checking and savings, with a median value of $5,300.
• 50.5% own retirement accounts as the second most popular financial asset with a median value of $65,000.
• 15.2%  directly own stocks of $25,000, less common than 53% owned indirectly through a fund or managed assets of $40,000 in value.
• 19% own cash value life insurance of $9,000 value.
• 7.7% certificate of deposits of $25,000.
• 7.5% savings bonds of $800 in median value (and $8,000 in average value).

 

The year with the lowest share of US adults that had stock investments was in 2013 and 2016, at only 52.9% for each year. (Gallup 2020)

The year with the highest percentage (65%) of US adult stock investments was 2007 and 2008, before falling due to the Great Recession. The latest Gallup poll in July 2021 found 56% of Americans reporting they own stocks.

The US’s annualized real return on equities in the US from 2001 to 2020 was at 5.7%. (Credit Suisse, 2021)

According to a Gallup poll, 12% of people relied on stocks as a major of income.

Stock market declines of 5%-10% usually take a month to recover. (Guggenheim Investments).

The average expense ratio for actively managed mutual funds is between 0.50%-1.00% and rarely exceeds 2.5%. For index (or passive) funds, the typical ratio is about 0.2%. Investopedia

 

8. Estate  Planning

According to a 2021 Gallup poll, 46% of those polled say they have a will that describes how they would like their money and estate handled after their death.

45% say they have a living will.

Many beneficiary designations are out of date, a common and costly mistake. IRS statistics show that beneficiaries cash out six months after the death of the person who designated that money. Many beneficiaries are losing the compound benefits by cashing money out rather than rolling over the asset and paying taxes and penalties. We address tips on how to handle designated beneficiaries better here.

Other Financial Facts To Know

A Fun Fact

More Americans own cats than stocks. Really. While 13.8% of American families own stocks directly (as opposed to mutual funds, for example), 25.4% own at least one cat. (Federal Reserve, American Veterinarian Medical Association).

85% of people don’t like their jobs, according to a Gallup global poll pre-pandemic. Only 15% of people are engaged in their careers.

71% working from home during the pandemic, including 51% new remote workers. 54% want to continue to work from home after the end of the pandemic. (Pew Research)

Do You Want To Be A Millionaire?

More than 8% of American households in America are considered millionaires in 2021. (CNBC)

There are 614 American billionaires in 2021 compared to 66 in 1990. (Americans For Tax Fairness)

The average millionaire filed for bankruptcy 3.5 times. Former President Trump is in good company. However, he hasn’t filed for bankruptcy personally—his businesses went through bankruptcy six times. JayWeller.com

Only 20% of millionaires inherited their wealth. The other 80% earned their money on their own. (The Millionaire Next Door)

 

Final Thoughts

In this post, we reviewed many vital areas of financial literacy backed by financial statistics. We tried to make relevant points on improving our money management skills by learning. Taking one step at a time, we can strengthen our financial discipline by saving more, spending less, participating in retirement plans at work or on our own, investing more, and having an estate plan. Most importantly, you should have a financial plan to help you achieve your financial goals. 

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