4 Scary Financial Facts: How to Avoid Becoming A Statistic

Every day we're bombarded with negative statistics when it comes to financial matters that can make us feel frightened, anxious, and confused. What should we be doing with our money? Are we falling behind? Are we just another statistic?

Americans are preoccupied with anxiety and constant stress about their finances.

Here are four of the worst financial statistics—what constitutes them, but more importantly, tips on how to avoid them.

Statistic 1: 57 percent of Americans don’t have enough savings to cover a $1,000 emergency.

Whether it’s a medical problem, an auto repair, or a job loss, unexpected emergencies can happen to anyone at any time.

Did you know that the cost of an ambulance ride can exceed $1,100 (or more depending on your state of residence)or the average auto repair bill can cost between $500 to $600?

What’s even more frightful is that an overwhelming number of Americans don’t have the funds available to cover these unexpected costs.

According to a 2022 survey, approximately one-third of American households experienced a major unexpected expense in the last year. Additionally, a December 2022 study reported only 43 percent of respondents said they would be able to cover a $1,000 price tag using their savings.

In that same report, here is how Americans reported they would pay for unexpected costs:

• 43% pay the costs using savings
• 25% finance with a credit card and pay off the amount over time
• 12% reduce spending on other things
• 11% borrow money from family or friends
• 4% take out a personal loan
• 4% something else

By having to rely on credit, loans, and borrowing money, it’s evident that a large portion of the population is budgeting for the short-term, if it all. While it’s difficult to plan for the future, especially when many Americans live paycheck-to-paycheck and focus on meeting basic survival needs, an emergency fund is a necessity that can provide financial security and reduce worry.

What you can do.

Create an emergency fund.

The purpose of an emergency fund is to improve one’s financial security by establishing a safety net that can be used in situations to meet unexpected expenses while reducing the need to withdraw from high-interest debt options, like credit cards and predatory loans. With an emergency fund, you are also less likely to go bankrupt or build unnecessary debt when an emergency cost arises.

While it may be a challenge, it can be both achievable and vital to set aside some funds while managing monthly bills, reducing credit card or student loan debt, and pursuing other financial goals. It’ll take meticulous planning and possibly some sacrifice, like cutting back on take out food everyday.

The optimal solution is to start immediately. Even if you have no savings, you can start by allocating just $1 a day. That’s $365 after an entire year. Increase your savings to $5 a day and you would have a fund of $1,825 after one year.

Consider diverting a portion of your paycheck to a savings account through direct deposit or set a monthly reminder to “pay yourself first” by transferring funds from a primary account to your savings.

To start your savings journey, financial experts recommend building a $1,000 emergency fund. This will help you understand your monthly income versus expenses while allocating some money for savings. Once a well-funded cushion is established, earmark more money to create a solid $2,000 emergency fund. You can try to gradually increase your savings targets from there.

Ultimately, the objective should be to save at least three to six months of your annual salary. This not only helps cover for unexpected expenses, but also helps to shield from negative financial consequences in case of job loss while hopefully providing a couple of months’ worth of living expenses are covered while you seek alternative sources of income.

Statistic 2: 25 percent of student loan borrowers default within the first five years of repayment.

In the last decade, Education debt in the United States has tripled, surpassing $1.7 trillion. This casts a bleak outlook for the future of student loan borrowers. When you obtain a loan from a lender, you agree to specified repayment terms. Failingto make on-time payments may lead to loan delinquency. Extended delinquency then results in loan default, or the failure to repay a loan, which may lead to the transfer of the loan amount to a collection agency. Default may occur immediately or after several months of missed payments, depending on the timeline outlined in your loan terms and state or federal laws. It’s worth noting that defaulters’ credit scores may take a big hit, typically on the order of 50 to 90 points. Those with low credit scores may typically pay higher interest rates, have difficulty renting, experience delays or obstacles in buying homes, and may even find themselves ineligible from certain employment opportunities. Additionally, defaulting may even increase a student loan borrower’s balance due to collection fees and accumulated interest.

What you can do.

It’s essential to be proactive in managing student loans or any other kind of debt.

For current or prospective students, it’s wise to minimize the amount of student loan debt by exploring grants, scholarships, and part-time jobs.

Ideally, graduates should budget their loan repayment amount into their expected monthly expenses. However, if you find yourself unable to repay your student loans, there are alternatives beyond borrowing money from family or friends.

First, contact your student loan servicer as soon as possible. If you’re hesitant, contact your college or university’s financial aid office as they may offer services to assist students with student loans and can even act as a liaison with service providers.

Exploring your repayment options entails finding a repayment plan that suits your situation, such as an income-based repayment plan, a temporary deferment or forbearance.

If your student loans have already defaulted, you can still call your loan servicer to discuss how to return to good standing. Possible solutions may include loan rehabilitation, loan consolidation, or paying off the loan in full.

Note that, loan rehabilitation on federal student loans is a one-time opportunity to clear default and regain eligibility for federal student aid. This 10-month program is an agreement between the lender and borrower for affordable repayment amounts Once the borrower makes these on-time payments and rehabilitates the loan, the default status is removed; however, the prior late payments would still appear on the credit history.

Alternatively, loan consolidation merges multiple federal education loans into one, thus allowing a single monthly payment.

Statistic 3: 35 percent of U.S. households have credit card debt.

In the United States, debt of all kinds is a major problem, with $1 trillion in credit card debt. Low wages and a high cost of living are driving people to spend outside of their means.

Looking at credit card debt, the Federal Reserve Bank of New York reported that credit card balances surged by $45 billion during the second quarter of 2023 to reach $1.03 trillion.

Want more frightening credit card statistics?

• Total credit card debt increased to over $1.03 trillion in 2023.
• Of all active credit card accounts in Q3 2022, 56% carried a balance.
• The average APR for all credit cards was 20.68% in Q2 2023.

What you can do.

Credit is a double-edged sword. It can be used to finance wealth-building purchases, while also posing the risk of excessive debt and snowballing interest.

Credit cards are the most common form of credit, and a simple rule for responsible use is to not buy anything you couldn’t pay for with cash. (There are, of course, rare exceptions, such as emergencies.) View credit cards as plastic cash and not as a gateway to revolving debt. If you can’t pay off your credit in a reasonable time frame, it’s generally advisable to forgo the purchase!

Another guideline is to maintain a low credit card balance. We’ve all heard of the 30 percent utilization rule—now, just stick to it. Maxing out a credit card or nearing the credit limit and then not paying it off in full each month will likely cause a lowered credit score. Decrease unnecessary spending and in some cases consider temporarily diverting money from a retirement account or an emergency fund in order to pay down credit card debt as quickly as possible. The accrued interest could cost hundreds or thousands of dollars for those only making the minimum payments each month, so prioritize paying off balances with higher interest rates.

Lastly, make every payment on time. Delinquent accounts will likely be reported to the three major credit card bureaus—TransUnion, Experian, and Equifax. Severely delinquent accounts run the risk of being closed by the creditor and sent to a collections agency.

For those who are grappling with debt, know that you’re not alone. Don’t be afraid to reach out to your creditor, a financial advisor, or another trusted source about your situation. Some creditors may be able to create a repayment plan or lower your card’s interest rate. With a plan and commitment, you can transform your financial situation around.

Statistic 4: 32 percent of working-age American adults have $0 saved for retirement.

A recent survey revealed that a majority of Americans aren’t saving enough for their retirement. About 32 percent of respondents said they had no retirement savings; that’s approximately 58 million people.

Women are even more vulnerable, due to the gender pay gap, longer life expectancies, and an investment gap. Surprisingly, 25% of women say they have no savings or less than $10,000, compared to 16 percent of men. Furthermore, women are saving and investing significantly less than men for retirement, with median retirement savings of $43,000 for women compared to $91,000 for men.

Retirement savings are also closely correlated to age.

Millennials are the least likely to have a large retirement fund, since they are the most recent entrants into the workforce.

What does this mean for most Americans? Perhaps the barriers to starting a retirement fund prove a significant reason to simply opt out. A lack of retirement planning education, an increasingly grim outlook on the future, and the challenges of rolling over funds after job hopping indicates that opening a retirement savings account may be viewed as a hassle.

However, the consequences of not saving for retirement can play out in a number of unsettling ways.

What you can do.

For young people just starting their careers, saving now and saving regularly will make all the difference.

Use the power of compounding interest, or the addition of accrued interest to the principal deposit, to your benefit. Even a small contribution set aside early and contributed to regularly could potentially provide a decent retirement.

Many financial planners recommend saving 10 to 15 percent of your income in a retirement account when starting your career. Saving as little as five percent could have a substantial impact in the long term, especially if your employer matches. Always take advantage of employer matching since it could help you reach the target savings amount with a smaller individual contribution.

Younger people are in a better position to recover if they’ve fallen behind on their savings because they have more time to leverage the benefits of compound interest

However, for those aged 40 and over, the picture is less favorable. Anyone nearing retirement age will want to have significant funds, otherwise, they may need to adopt an aggressive savings plan. This could mean saving three to four times as much as younger people.

Procrastination is the root of the problem. With less time to save with each passing year, older age groups may need to engage in an honest conversation about their financial priorities, and, as necessary, reevaluate their expectations.

Let this be a lesson that saving money for a comfortable retirement nest egg is a wise investment, regardless what age you begin.