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OPINION: It's Policy, Not Personal: Why We Need to Rethink Personal Finances

The coronavirus pandemic has likely already caused thousands of small businesses to close, millions of workers to lose their primary source of income, and communities across the country to wonder howand whenthey can start to recover. Goldman Sachs now estimates that over 2 million Americans claimed unemployment insurance last weekmore than three times the previous weekly record. Other analysts project that 5 million Americans will lose their jobs this spring.

Making matters worse, many households in the United States were in a financially precarious position before the coronavirus hit. The most recent Financial Well-Being Survey from the Consumer Financial Protection Bureau noted that the majority of respondents (61%) felt they were just getting by financially, and 73% were concerned their savings were not going to last. In a 2015 Pew Research survey, 57% of respondents said they weren’t prepared for a financial shock, while 33% had no savings whatsoever.

This lack of savings has been clear for far too long. It’s no secret that people have been living paycheck to paycheck; we all know the commonly cited statistic that 40% of Americans would struggle to come up with $400 in an emergency. In the aforementioned Pew report, more than 55% of respondents said they either break even or spend more money than they make per month. Given how widespread these challenges are, why do so many of us think this is a problem that can be primarily solved at the individual level?

Americans tend to view each household’s finances as a personal issue, resulting from their particular decisions, when in fact, we should be looking at the public policy in placeor lack thereofas the real problem. Through my work on the Funding Our Future campaign, I’ve been focused on the savings shortfall and what we can do about it, working with our more than 40 partner organizations to identify barriers and highlight solutions to long-term financial stability.

Decades of stagnant wage growth for many workers combined with rising costs has made it particularly difficult for households to save. Prosperity Now’s 2019 Scorecard found that nearly one-quarter of all jobs in the United States are in occupations that tended to pay below the poverty threshold for a family of four. Prosperity Now also determined that one in five households experience month-to-month income volatility, adding a high level of unpredictability to their financial security. These issues affect communities of color at significantly higher rates.

At the same time, health care, education, and child care costs have skyrocketed. For example, as a millennial, I know too many young workers entering the workforce who are already strapped with debt. A new report from BPC’s higher education project finds that 39% of all student loans that should be in repayment are either behind on payments or in default. Personal savings rates have simultaneously declined over the past few decades. In the 1970s, Americans saved an average of 12% of their income. Since the start of 2010, they’ve saved an average of just 7%.

The economic fallout from the coronavirus will inevitably widen the gap between income and expenditures for many households, leaving millions of displaced workers and their families more vulnerable than ever. While the immediate solutions will necessarily include elements like direct cash payments, enhanced unemployment insurance, paid sick leave, and other financial relief, we must address the larger structural economic issues that this situation laid bare. That will demand a longer-term focus.

BPC’s Commission on Retirement Security and Personal Savings recommended several policy changes to help people save for emergencies, including making it easier for workers to automatically be enrolled in separate retirement and savings accounts through their employers. Bipartisan legislation has now been proposed in Congress to accomplish this. Even if enacted, the onus will be on employers to prioritize the financial wellness of their employees by putting these programs in place. Indeed, employers and financial institutions can play a large role in helping to solve these issues. BlackRock’s Emergency Savings Initiative is one example of how cross-sector collaboration can address income volatility and tackle the lack of savings for families across the country.

The social safety net also disincentivizes saving among low-income families by enforcing stringent asset limits to determine eligibility for a number of public assistance programs. As of 2016, low-income families in at least 42 states could lose access to programs like the Supplemental Nutrition Assistance Program (commonly known as food stamps) or Temporary Assistance for Needy Families if they had accumulated a meager amount of savings. Through policy change, we can ensure that federal assistance programs for those in need do not discourage prudent saving behavior.

Many people’s natural instinct is to place the blame for lack of savings on the shoulders of individual struggling Americans. But pointing the finger at household decisions doesn’t reflect the structural economic challenges and policy barriers workers and families have long faced. The coronavirus has exacerbated these problems, as workers are laid off, businesses close, parents work from home with children who are not in school, and millions of Americans deplete any liquid savings that could support them during this shock. As a society, we need to help Americans create a better and more stable cushion between their earnings and their spending. Households should not be living paycheck to paycheck, but to change this, we need solutions from businesses and the government. If policymakers and business leaders take action today, Americans can have the tools they need to enhance their financial security and be more prepared when the next crisis or recession comes.

Kara Watkins is campaign manager for Funding Our Future, a campaign of the Bipartisan Policy Center.

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