Remarkable Stability in "Doing Okay"

Three out of four adults say they are doing at least okay financially, according to the Federal Reserve Board's Survey of Household Economics and Decisionmaking, fielded in the fourth quarter of 2020. The 75 percent figure is identical to what was reported at the same time one year earlier—before the coronavirus pandemic. 

The Fed's 2020 survey asked Americans about their financial wellbeing not only at the end of 2020, but also at two other times during the year as it tracked the impact of the pandemic on household finances. In April 2020, the percentage who said they were doing at least okay financially dipped to 72 percent. By July, it had climbed to 77 percent. This increase, explains the Fed, "is consistent with some interpretations that many aspects of government stimulus measures...appear to have blunted the negative financial effects of the pandemic for many families."

Here are the percentages of adults who said they were doing at least okay financially as of the fourth quarter of 2020 by selected demographic characteristics, and percentage point change since 2019...

Family income

$100,000 or more: 95% (0)

$50,000 to $99,999: 84% (0)

$25,000 to $49,999: 65% (-2)

Less than $25,000: 52% (0)

Race/ethnicity

Black: 64% (-2)

Hispanic: 64% (-2)

Non-Hispanic white: 80% (+1)

Parental status

No children: 78% (+1)

Children: 67% (-4)

Metro status

Metro area: 76% (0)

Nonmetro area: 69% (-3)

Source: Federal Reserve Board, Economic Well-Being of U.S. Households in 2020

Giving Money to Adult Children, Aging Parents

Many midlife adults have it tough. Some are the parents of adult children who are not yet financially independent. Others have aging parents who are struggling to make ends meet in retirement. To help out, millions of midlife adults are giving them money.

AARP recently took the measure of these millions, surveying people aged 40 to 64 with living parents and/or adult children aged 25 or older. Respondents were asked, "Have you given any financial support to your [parents/adult children] in the past 12 months?" Here's how many had...

Percent of adults aged 40 to 64 who have provided financial support in the past 12 months to...
Parents: 32%
Adult children: 51%

The support is substantial, too. Among those who gave money to a parent in the past year, 54 percent had given $1,000 or more and 20 percent $5,000 or more. The figures are similar for those who gave money to adult children—56 percent gave $1,000 or more and 25 percent gave $5,000 or more.

Is it a financial strain to provide this support? For many, not so much. Among those helping parents, 43 percent say it is little or no strain. For those helping adult children, 47 percent say the same. But a substantial 28 to 29 percent of those providing financial support say it is causing them high financial strain.

Source: AARP, Midlife Adults Providing Financial Support to Family Members

47% Faced a Financial Challenge in Past Year

Nearly half of American households (47 percent) headed by people aged 30 or older experienced an unexpected financial challenge in the past year, according to an AARP survey. Among households headed by Millennials and Gen Xers, the majority faced at least one such challenge. AARP defines an unexpected financial challenge as one that "caused a significant strain in your budget or your ability to pay your bills."

Percent experiencing at least one unexpected financial challenge in the past year
Millennials: 58%
Gen Xers: 54%
Boomers: 38%

Medical expenses were the number-one cause of financial challenges, cited by 33 percent. The median cost of a financial challenge was between $3,000 and $3,999. About half (51 percent) of those who experienced an unexpected financial challenge managed to get their finances back under control in less than 6 months. That's the good news. The bad news is that the 56 percent majority of those who faced a financial challenge experienced more than one.

Source: AARP,  Coping with an Unexpected Financial Challenge

Financial Situation of American Households

The 56 percent majority of Americans say their personal financial situation today is good or excellent, according to a 2019 Gallup poll. This figure is significantly above the low of 41 percent recorded in 2012—in the aftermath of the Great Recession. But not everyone is doing well. Here is the distribution of households by their current financial situation...

Current financial situation (percent of households)
19% are saving a lot
37% are saving a little
26% are just managing to make ends meet
  6% are having to draw down savings
  7% are running into debt
  5% mixed, neither, or no opinion

Source: Gallup, Americans Feel Generally Positive about Their Own Finances

Reaching Out for Financial Advice in Old Age

Older Americans might be in trouble. They control a large share of the nation's wealth, yet many are not prepared to manage it. Cognitive abilities decline with age, and most older Americans eschew financial advice. Those are some of the findings of a National Bureau of Economic Research analysis of the 2016 Health and Retirement Study, a longitudinal survey of people aged 50 or older. NBER researchers added several questions about financial advice to the HRS, which also measures cognitive ability and financial literacy. The goal of the study was to determine how cognitive ability and financial literacy influence the quantity and quality of the financial advice sought by older Americans.

One of the study's major findings is how infrequently older Americans seek financial advice. Only 35 percent of respondents had reached out for guidance on handling their finances. Another major finding of the study: seeking financial advice is not influenced by cognitive ability or financial literacy. In other words, cognitive ability and financial literacy have no affect on the quantity of financial advice sought by older Americans.

The quality of financial advice is another matter. "More cognitively able and financially literate respondents tend to seek professional financial advice, rather than seeking casual help from family/friends," the authors report. Respondents with greater cognitive ability and financial literacy are more distrustful of financial advisors in general and especially wary of "free" financial advice from advisors who shroud their fees. The quality of financial advice is influenced by cognitive ability and financial literacy, the researchers conclude.

"Low cognitive ability and poor financial literacy can be a barrier to receiving quality financial advice," conclude the authors, "suggesting that researchers and policymakers may need to find new ways to evaluate and monitor financial behavior in an aging population."

Source: National Bureau of Economic Research, How Cognitive Ability and Financial Literacy Shape the Demand for Financial Advice at Older Ages, Working Paper 25750 ($5.00)

Retirees with Dementia: Who Has Help with Finances?

How many retirees with mild cognitive impairment or dementia have someone to help them with their finances? That's the question posed by a Center for Retirement Research study. The question is critical, the researchers say, because studies show that 18 percent of people with mild cognitive impairment and 80 percent of those with dementia need help with their finances.

Analyzing data from the Health and Retirement Study, the researchers determined first the percentage of retirees aged 70 or older with mild cognitive impairment or dementia, then examined how many had potential helpers. Mild cognitive impairment is more common than dementia, affecting 33 percent of 70-to-74-year-olds and rising with age to 45 percent of people aged 85 or older. Dementia affects 2.7 percent of 70-to-74-year-olds and rises with age to 26.5 percent of those aged 85 or older.

"Fortunately, most individuals do have some help," the researchers find. Among those with mild cognitive impairment, 85 percent have available assistance. Among those with dementia, the figure is an even higher 95 percent. The types of helpers range from a non-impaired spouse or caregiving child to nursing home care. Those least likely to have help are what the researchers call "isolated"—defined as not having a non-impaired spouse and not having children within 10 miles. Others who are less likely to have help are high school dropouts and non-whites.

Source: Center for Retirement Research, Are Many Retirees with Dementia Lacking Help?