What? Financial insecurity is surprisingly widespread in the United States; according to a 2013 survey, half of Americans would not be able to pay for an unexpected $400 cost. This state of financial peril is a secret source of shame that cuts across class, education, and age groups. This isn't simply about the cost of living or wage stagnation. Researcher Annamaria Lusardi observes that the expansion of financial product offerings has outpaced the ability of many Americans to understand them. Countries with the most sophisticated credit and financial markets face higher problems of financial insecurity.
So what? New research on financial insecurity -and the role of credit- is challenging a dominant economic assumption that individuals smooth their consumption over their lifetime by offsetting lean years with savings from better years. Instead, this research finds that when individuals receive money, for example a work bonus or a tax refund, they are more likely to spend it than to save it. As numerous countries are currently debating the creation of minimum income programs, these findings suggest that improving financial literacy is an essential piece of the solution.
The revelation that financial insecurity is so common also raises a question of how this phenomenon could be shaping American society. Struggling Americans may form a significant part of the sharing economy, with the potential to transform economic fundamentals. They might also drive more worrying social trends, such as a rising incidence of suicide, and the growth of the 'transactional-love economy'. Psychologists note that people facing poverty tend toward a 'scarcity mindset' that fuels short term focus in decision-making, often to the detriment of long-term well-being.