Credit Cards: The New Lifeline for the Middle Class?

coins on past due bills

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It can be difficult to put money away for unexpected costs, especially since most Americans are already strapped for cash. We know we’re supposed to set money aside for our emergency savings fund, but too often we choose to put it toward other things. We spend it on rent, want to take a weekend vacation, or simply think we don’t have room in our budgets to save up for the unlikely event that we need to buy a new car out of the blue.

In fact, just over half of Americans have more in savings than they do in credit card debt, a recent survey by Bankrate found. Only 52% have an amount stashed away for a rainy day that’s greater than the amount they owe on their credit cards. That’s decreased from 58% just a year ago, and matches the level from 2011 when Bankrate first began asking consumers about their savings compared to their credit card debt. “This is yet another data point that shows us that there’s been virtually no improvement in the emergency savings cushion for American households,” said Chartered Financial Analyst Greg McBride, Bankrate’s chief financial analyst.

Of all the findings in the report, the lack of growth in people who have more savings than credit card debt is concerning – and also frustrating for people who haven’t been able to “move the needle” despite more discussion about the need for savings. “In a perfect world, that’s 100,” McBride said in an interview. “We’re never going to get 100 percent, but it sure would be nice to get above 52.

The number of people who have no credit card debt, but who also have no savings jumped from 13% last year to 21% in this year’s survey. It’s good to see some people get out from under credit card debt, but the concerning issue is that people’s budgets are too tight to put any of that money into a savings account earmarked for unplanned problems. McBride said he realizes people don’t have a lot of extra money to throw around, but “They’re just one unplanned expense away from having credit card debt.”

Savings, piggy bank

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Savings continues to be the Achilles heel for Americans, but the report did find other more promising data. “We’re seeing a lot of positives in other areas and I don’t want to gloss over those,” McBride said. People reported a feeling of greater job security this year than last, for example, along with higher net worth and being more comfortable with their levels of debt. In addition, just 22% of respondents had more credit card debt than savings – down from 24% last year and is the lowest percentage in six years. 

Younger people might also be the key to seeing greater levels of savings compared to credit card debt. Just 20% of adults ages 18-29 had more credit card debt than emergency savings, compared to 26% of adults ages 30-49 and 25% of adults ages 50-64. Millennials generally have a greater inclination to save than generations before them, McBride said, which in part can be explained by the financial crisis occurring during their financially formative years.

“They’re just more cautious about their spending than their predecessors,” McBride added. “Even if they weren’t directly affected [by the crisis], they had a front row seat.”

Progress has been made in other areas of financial planning and well-being, so not all is lost. However, bulking up emergency savings is a key factor in long-term success. You can’t go through life expecting to be completely unscathed by a medical issue, a serious vehicle malfunction, or even something simple like a crashed laptop, which can still put you out $1,000 or so. Roughly two-thirds of Americans can’t afford an unexpected $500 bill, which means they’re relying on credit, slashing their budgets, or relying on friends and family to make it through.

None of those situations is ideal, which is why it’s such a concern for Bankrate and experts in the financial field. “Savings continues to be one area where people are not making progress and it continues to be the sore spot in financial security,” McBride said. 

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