Financial Distress Afflicts Lowest-Income Adults the Most, But Low- and Moderate-Income Adults are Not Immune

A study by the Urban Institute, Financial Distress among American Families: Evidence from the Well-Being and Basic Needs Survey, found financial insecurity is greatest among the lowest-income adults in the U.S. but is not restricted to them. Nearly 58% of adults with incomes below the federal poverty level (FPL) experienced financial insecurity in the past 12 months. Fifty-one percent of adults with low incomes between 100% and 199% of the poverty level and 33% with moderate incomes between 200% and 399% of the poverty level also experienced financial insecurity. Half of the respondents living in poverty reported they were not confident in their ability to cover an unexpected expense, while 38% of low-income, 20% of moderate-income, and 6% of high-income respondents gave the same response.

The report is based on the Well-Being and Basic Needs Survey, a nationally representative survey of 7,588 non-elderly adults. Thirty-two percent of respondents reported at least one of three experiences with financial insecurity in the past 12 months: being contacted by a debt collector, missing a payment on a credit card or nonmortgage loan, or lacking confidence in their ability to cover $400 in unexpected expenses. Women were more likely to report financial insecurity than men (36% compared to 29%). Financial insecurity was more common for non-Hispanic blacks and Hispanics than whites (52% and 40%, respectively, compared to 27%). Renters were nearly twice as likely as homeowners to experience financial insecurity (46% compared to 24%).

Another measure of financial distress is the use of alternative financial services (AFS) like nonbank financial institutions. Alternative financial activities include taking payday loans, taking car-title loans, and selling items at pawn shops. AFS providers tend to have higher interest rates and fees than mainstream financial providers, further exacerbating borrowers’ financial challenges. Twelve percent of adults reported using some form of AFS in the past 12 months. Adults in poverty and other low-income adults used AFS at a rate five times greater than high-income adults with incomes greater than 400% of FLP (22% and 21% compared to 4%). Black and Hispanic adults were more likely than whites (20% and 16% compared to 9%), and renters were more than likely than homeowners (18% compared to 8%) to use AFS.

To support low- and moderate-income families and reduce financial distress, the authors recommend financial coaching and employer-incentivized saving, increasing incomes, and expanding the earned income tax credit, all to increase greater financial security. Universal pre-K education, expanded family leave, and equal opportunity employment protections could strengthen the financial outcomes of women and people of color.

Financial Distress among American Families: Evidence from the Well-Being and Basic Needs Survey is available at: