NC Budget and Tax Center

Few workers have enough savings to withstand a long-term government shutdown

The shutdown of the federal government is having a detrimental impact on employees who are either furloughed or who are working without pay. Last Friday marked the first full pay period some employees went without a paycheck, and while their pay may be on hold, their bills certainly are not.

Workers are still expected to pay rent, families are still expected to pay for childcare, and recent graduates are still expected to pay their student loans.

Unfortunately, far too few Americans actually have enough savings to go for weeks, let along an entire month, without pay. When the Federal Reserve’s Survey on Consumer Finances asked families how they would deal with a hypothetical income shortfall, 58 percent of families said they would draw from savings and investments, while only 21 percent responded that they would need to borrow money. But when families who actually faced income shortfalls reported how they made ends meet, only 44 percent were able to pull from savings while 43 percent of families had to borrow money, including taking on credit card debt.

The reality is that nearly 30 percent of all of households, regardless of income, have less than $1,000 in savings. Most Americans are ill prepared to handle a financial emergency such as an illness, job loss, or, in this case, a government shutdown.

According to The Center for Enterprise and Development, more than 25 percent of North Carolinians are asset poor, and more than half (51.5 percent) of all North Carolinians are “liquid asset poor,” meaning they do not have enough cash savings for a safety net in case of a family emergency.

Middle-income, not just low-wage workers, are at risk of running through their savings and going into debt to weather the shutdown. The Survey on Consumer Science finds that the typical worker who earns between $45,000 and $70,000 each year has $2,200 in savings. While this may be enough to pay for a car repair or an unexpected home expense, it is not nearly enough to cover everyday expenses. According to the Living Income Standard, a family with just one adult and one child incurs at least $3,000 in expenses each month. Families with multiple children who live in high-costs counties or who earn lower wages face even larger challenges.

Workers who earn between $25,000 and $45,000 a year typically have $1,500 in savings, and most families who earn even less have $500 or less in case of emergency.

Even in households with middle class income, the government shutdown is having a disproportionate effect on households of color.

The Survey of Consumer Finance demonstrated that even within income brackets, there are still disparities in which families have access to an adequate amount of savings. When households were asked if they could borrow $3,000 from friends or family in case of emergency, only 43 and 49 percent of Black and Hispanic households answered “yes” while 71 percent of white households reported they could.

This points to the long-term effects of occupational and educational segregation, wealth inequality, discrimination in the workplace and financial institutions, and other factors. Although Black and Brown families may have similar incomes to their white counterparts, they often pay more for access to capital through loans, are less likely to receive intergenerational wealth transfers to avoid costs such as mortgage insurance, and are more likely to provide ongoing financial support to family members who earn less.

While there are many factors that result in different liquid asset rates for families along lines of race and ethnicity, the end result is that the combination of the government shutdown and a lack of income can easily push families into long-term debt situations — and even out of the middle class altogether.

Ending the shutdown is the only way to ensure that these workers and their families do not suffer from a lifetime of financial burdens as a result of the President’s obsessive pursuit of a racist and xenophobic immigration policy.

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