> Posted by Julia Arnold, Financial Inclusion Consultant

If I ask you to picture an American who is financially vulnerable, what do you see? Do you see someone living from paycheck to paycheck? Someone who patronizes a payday lender or car title lender? Perhaps a family struggling to decide which bill to pay at the end of each month? Someone with a high school degree working a few part-time, low-wage jobs? And how many people do you think fit into this category in the U.S.? Twenty percent? Thirty percent?

What if I were to tell you that in fact nearly half of Americans report that they could not come up with $400 in an emergency? That’s about 150 million people – a number so large you’re bound to know at least one person in this group. Financial insecurity or vulnerability isn’t just a concept discussed among development professionals looking to support a microfinance institution in Kenya or India; in the U.S., it’s a reality for millions of our neighbors and friends. Those living in perilous economic existences are not just the people we imagined above. The financially vulnerable are hiding in plain sight.

This point is driven home in the recent The Atlantic Monthly article “The Secret Shame of the Middle Class” by Neal Gabler. In it, Mr. Gabler confesses his personal financial struggles – borrowing money from his daughters to pay for heating bills, overspending on monthly expenses while living off of one income (his), using credit cards to pay for everything, and unforeseen troubles such as not being able to sell an apartment or facing tax penalties. All of these issues, some of them created by choices, some of them out of his control, have left him and his wife without retirement savings and barely treading water in the fall of their lives. As he describes it, they are not what we visualized above – they have advanced degrees, he has a successful career, they own a home, their daughters are financially independent and successful. But, despite the fact that Mr. Gabler did not spend his money extravagantly, he writes that he, like “many [Americans], can’t save for a rainy day because we live in an ongoing storm. Every day, it seems, there is some new, unanticipated expense…What so many of us have been suffering for so many years may just seem like a rough patch. But it is far more likely to be our lives.”

Mr. Gabler describes himself as a financial illiterate. But he is not the only financially illiterate American. In a paper describing the results of a national financial capability study, Annamarie Lusardi found that a majority of Americans (51 percent) do not “plan for retirement or make provisions against shocks”, such as emergency savings, and that “levels of financial knowledge are strikingly low” with fewer than 10 percent surveyed able to answer all questions on interest rates, inflation, and mortgages correctly.

To be sure, there are many important distinctions between low-income individuals and Mr. Gabler. However, what his piece makes clear is that financial insecurity cannot be relegated to developing contexts alone. With so many middle class Americans struggling to save, climb out of debt, or help their children succeed, I find myself hearing echoes of a familiar narrative in the development context. What lessons can we draw regarding both Mr. Gabler’s circumstances and Americans’ broader economic insecurity?

  • Hold the salt. Gabler described his lack of savings not due to extravagant spending but to “salting” his money away. This phrase has stuck with me since I first read this piece. Who doesn’t salt their money away? A latte here, a new shirt there, an impulse buy rather than tucking those few extra bucks into savings. It is this very behavior that Beth Rhyne and I discuss in our financial capability paper – long-term behavior change is incredibly difficult to develop which is why we propose seven principles to help providers and others help customers hold the salt and start building the skills for financial security.
  • Desperately seeking control. Interestingly, the reader reaction to Mr. Gabler’s piece published by The Atlantic was largely derisive. In fact, most writers called for the author to take a good long look in the mirror – clearly he had made poor choices and had brought his financial misfortunes upon himself. Yes, saving is hard, but if he had just said “no” more frequently, he would have $400 a month many times over, cried his critics. Certainly, I would argue that self-control is a critical component to financial security – but that’s the point. Self-control is critical and it’s really difficult to exercise. There is a reason why behavioral economics and human-centered design theories have increased in popularity. Understanding and incorporating human psychology and behavior into well-designed financial products and services will help people like Mr. Gabler (and many of us) who struggle with impulse control.
  • If we build it, they will grow. As we set out to build financial security and help low-income financial service customers make positive behavior changes, let us be sure to keep a very long view throughout the process. If the ultimate theory of change is that by helping customers build capability through well-designed financial products we can help them move out of the vulnerability and volatility of poverty, then we need to keep Mr. Gabler’s financial illiteracy in mind when building these products and services. For it is clear that the current financial landscape does not – with a majority of American’s lacking a savings account and a mere tenth able to recall basic financial literacy, our financial education, financial solutions, and financial landscape can do a lot more to prevent middle-income Americans from struggling and low-income individuals from remaining in poverty and failing to learn critical skills and behaviors that they can carry with them long-term.

No one makes financial decisions in a vacuum – and we don’t always make them with our financial well-being in mind, but, as Mr. Gabler said, we make them with our lives in mind.

Have you read?

Shifting the Paradigm: Providers as Financial Capability Builders

What Financial Health Means to Me

The Cost of Debt – Don’t Forget the Legal Fees