Dayton Daily News
By: Cornelius Frolik
July 7, 2012
A record 1.8 million Ohioans saw their household incomes decrease by 25 percent or more in 2010, according to a new report.
As the risk of financial losses has increased in the state, more Ohioans lack an adequate safety net of savings and assets for use in the event of an economic emergency.
Many Ohioans do not have enough savings to last three months without experiencing serious hardship.
Policy experts stress the importance of building a nest egg in case residents hit a financial rough patch or experience a rainy day, which they say is nearly inevitable. They acknowledge, however, it is very difficult to put money aside when finances are tight.
"With inflation, and more expensive energy costs and more expensive food, there are just not as many opportunities to save," said Shawn Cassiman, assistant professor of social work at the University of Dayton.
The Great Recession caused widespread financial destruction, and the state experienced record levels of economic insecurity between 2008 and 2010, according to a report released last month by the Economic Index Security project, which is supported by the Rockefeller Foundation. The entire nation experienced previously unseen levels of economic instability.
Income dips 25% for 1 in 5
In 2010, about 20 percent of Ohioans saw their available household incomes decline by 25 percent or more, and these residents had insufficient financial wealth to replace the losses, according to the report.
Available household income is the money remaining after paying for medical care and servicing financial debts. The estimates do not include residents who are in the armed forces or residing in health care or correctional facilities.
Although economic insecurity spiked during the recession, it had been on the rise in Ohio for years. The share of Ohioans who experienced severe financial losses grew each year beginning in 2004, and has trended upward since 1986.
In 2004, about 16 percent of residents experienced income losses of 25 percent or more; about 14 percent did in 1986. The losses are attributable to changes in income and increases in out-of-pocket medical expenses.
"The story here is we have unprecedentedly high levels of economic risk that are broadly shared across all groups," said Stuart Craig, co-author of the report and a research associate with the Economic Security Index project.
People who suffer severe financial setbacks and lack savings typically have to cut back on nonessential expenses, such as preventative and routine medical care and checkups, vehicle maintenance, entertainment, recreation, dining out and vacations, experts said.
Consumers who experience income reductions often are forced to change their living situations, moving in with friends and family members or downsizing to smaller homes or apartments.
If the income losses are dramatic, people will often skip necessary medical or dental treatments or decide against purchasing medications they need. Some people allow their bills to become delinquent, risking damage to their credit scores or facing penalties or disconnections of utility services.
Contessa Brown, 42, of Day-ton said she had a full-time factory job in Troy and a part-time restaurant job in Piqua until she was injured in an automobile accident in November.
She said her vehicle was totaled and she suffered injuries to her neck and back. She was laid off by both employers shortly after the crash, because she lacked transportation to and from work.
Brown said she lacked emergency savings, and she was forced to move in with her daughter in Dayton to scrape by. She said it has been hard and she lives "hand-to-mouth," but she learned from her experience, and said she will start saving as soon as she secures employment.
"No matter hard it is, as soon as I start getting some income I am going to start a bank account because I had nothing to fall back on - nothing," she said.
More lack safety net
More people have insufficient or no emergency savings, although they often need savings that will last six months or more to survive an economic disaster, said Greg McBride, senior financial analyst with Bankrate.com, a Florida-based financial information company.
About 49 percent of Americans lack emergency savings that will last three months, an increase from 46 percent last year, according to a new Bankrate survey. About 28 percent of Americans have no emergency savings, up from 24 percent last year.
In Ohio, about 27.3 percent of households have little to no financial cushion to protect against unemployment or other financial emergencies, according to the Corporation for Enterprise Development. This was up from 22.6 percent in 2009.
When homes and cars are excluded as assets - which is sensible because they are not easily converted into cash - about 43.6 percent of Ohio households lack a financial safety net, the group said.
McBride said saving is not a priority for many, although unplanned expenses are unavoidable: Cars break down, people get sick or injured, family members die or workers lose their jobs, but savings can temper a crisis.
"The right cushion for you is how long will it take you to reproduce that income stream you had at the last job, and the reality of today's labor market is when you lose a job, the next one pays a lot less," he said. "That argues for more of a cushion."
Policy experts said one way to build an emergency fund is to set up direct deposit so part of a paycheck is automatically put into a savings account. This forces people to live on less than they earn.
People should choose a savings goal so they can work out a budget that will reach it. Tracking all expenses will help identify expenditures that are a drain on the budget.
Cassiman, with UD, said an effective strategy for saving money is carrying cash and spending only hard currency. She said consumers are less likely to overspend when they do not use credit cards.
"We have spent the last several decades trying to maintain our lifestyles through credit," she said. "Establish a budget, and then stick to only spending that much."