Only 40% of Americans Feel Financially Secure: How Do You Stack Up?
KEY POINTS
- A survey by Motley Fool Money found that the median account balance of transaction accounts is $8,000.
- Financial security looks different to different people based on stages of life, income, and savings.
- Building an emergency fund is the first step toward financial security.
How are you feeling about your financial situation? Could you cover an unexpected $400 expense? Or are you stressed about credit card debt and worried about covering expenses? Recent research by The Motley Fool Motley Fool Money and data from the Federal Reserve explores how the average American feels about their financial situation and takes a look at the numbers.
Read on for a deeper dive into how much the average American has in savings and checking accounts, and how you stack up.
40% of Americans feel financial secure
A survey by The Motley Fool Motley Fool Money found that 40% of Americans feel financially secure, which means the vast majority -- 60% of Americans -- don't feel financially secure. While the idea of financial security is subjective, The Federal Reserve found that only 45% of Americans could cover a $400 expense from their checking or savings account. This doesn't include money they might hold in investments or retirement accounts.
That means more than half of Americans are one toothache or one blown car head gasket away from being stretched financially. A small emergency could require them to pull money from investments, use their credit cards, or ask for help from family.
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When reading about personal finance, it's easy to get overwhelmed by headlines saying you need $100,000 in savings or $1 million to retire. But if you have savings to cover a $400 expense, you're doing better than 45% of Americans.
The average transaction account balance is $62,000
The Federal Reserve reports the mean (average) account balance for transactional accounts is $62,000, which includes checking, savings, and other accounts that can process transactions, but does not include retirement or other brokerage accounts. But the Federal Reserve reports the median transaction account balance is $8,000.
Keep in mind, there's a big difference between mean and median. To find an average, you add up all the account balances and divide it by the total number of accounts. So, if we look at 10 people who have balances of $1,000, $1,200, $1,500, $2,000, $2,500, $3,000, $5,000, $10,000, $15,000, and $100,000, the total amount is $143,200.
Dividing this by 10 gives us an average balance of $14,320. However, this number is heavily skewed by the one very large account balance of $100,000.
In contrast, the median is the middle value in a list of numbers. For the same 10 account balances, the median would be the average of the fifth and sixth numbers when they are ordered from largest to smallest, which is $2,500 and $3,000.
$2,500 + $3,000 = $5,500
$5,500 / 2 = $2,750
The median balance account is much smaller than the average, but also less skewed by that one extremely high savings account balance. Thus, the $8,000 median account balance is a more realistic view than the average account balance. If you have $8,000 in your transactional accounts, you're doing better than the average American.
Financial security can mean different things to different people
There is no single definition of financial security. In fact, the definition of financial security will likely change over the course of your life. When I was a single bartender living with a roommate, I felt pretty secure with an extra $1,000 in the bank.
Now, with kids and a mortgage, my definition of financial security means having a large emergency fund, healthy retirement account balances, and low debt. For some, financial security may mean having a steady income, large investment accounts, being debt free, or having a robust retirement plan.
How do you stack up against the average American?
If you have the cash to cover a $400 unexpected expense and have at least $8,000 between your checking, savings, and money market accounts, then you are doing better than the average American. If you're not meeting those goals, the best time to start is today.
Consider opening a high-yield savings account that pays a higher interest rate. Check for subscriptions you don't use anymore and save that money instead. Shopping around for cheaper car insurance might save you hundreds of dollars you can put in savings. Over time, even small regular savings account deposits can grow to become a solid emergency fund.
Our Research Expert
Danielle is a small business and finance industry writer based in Ohio. She writes about tech, finance, and small businesses for Motley Fool Money and other industry publications.
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