you're reading...

General News

Financial fragility in America: Evidence beyond asset building [Research Assistantship]

Professor: Annamaria Lusardi


Department: Business School


Title: Financial fragility in America: Evidence beyond asset building



Several years after the financial crisis, financial fragility is still pervasive in the U.S economy. This highlights the need to understand household financial preparedness beyond simple measures of wealth and asset building. In this paper, we will explore the determinants of financial fragility for American households. We will not only analyze their assets but particularly their debt and payment obligations, financial literacy, and demographic characteristics. Analyzing household balance sheets and financial management will help us understand the determinants of financial fragility of American families. Understanding the underlying factors associated with higher financial fragility is important not only to address the short-term effect of failing to cope with an emergency but also to shed light on the implications of financial fragility for long-term financial security.



The Financial Crisis of 2007-09 highlighted the severe economic impact of weak household financial resilience. In the aftermath of the crisis as the economy and the labor market recover, one would expect to see higher precautionary savings. However, more than one-third of Americans surveyed in the 2015 National Financial Capability Study (NFCS) reported that they could certainly not or probably not use any available resources to come up with $2,000 in a month if the need arose. Overall, the ability to cope with emergency expenses—what we define as financial fragility—remains low for households in the U.S., with adverse implications for the individual, the household and the overall economy.


Household financial fragility is often attributed to low income or too few assets. However, data from the 2015 NFCS show that while financial fragility is highest for low-income households, those in the middle-income ($50–75K) and high-income (greater than $75,000) ranges are also substantially financially fragile. Specifically 30% of middle-income and 20% of high-income households could be classified as financially fragile as of 2015. This is notable, especially when comparing the relative magnitude of the emergency expense ($2,000) to a household’s income level. Despite higher income, the failure to cope with financial emergencies could be caused by a myriad of factors such as having too many expenses, complex family structures and caregiving responsibilities, or suboptimal investments.


In this project, we seek to understand what factors can explain financial fragility among American households and what are the long-term implications of financial fragility. We will analyze the roots of financial fragility, examining to what extent it is determined by high indebtedness and other factors that offset high asset levels. To conduct the empirical analysis, we will use data from the 2015 NFCS to analyze the socioeconomic characteristics of financially fragile households, including demographic features such as education, ethnicity, age, and family structure, and non-demographic characteristics like debt levels and debt management, overall financial behavior, expenses, asset ownership, and financial literacy. The NFCS is a nationwide survey of approximately 25,000 adults. Since 2012, it has included a measure of financial fragility we have designed for that survey. Here is the question that was added to the survey: “How confident are you that you could come up with $2,000 if an unexpected need arose within the next month?” This comprehensive measure allows individuals to evaluate their own capacity to cope with financial emergencies in any way that suits their personal financial situation. This understanding of financial preparedness is a crucial contribution to the current literature, which has largely focused on pre-determined measures for household financial well-being such as levels of income, assets or savings.


For financially fragile households, suffering from a financial setback can lead to a reprioritization of expenses, with potentially adverse consequences for spending on sources such as children’s education and health. This is a source of increasing inequality in the society, and if unchecked, financial fragility could thus heighten socioeconomic disparities for American families in the future. Our analysis will have important implications for practitioners and policy makers for improving the financial resilience of American families. An understanding of weaknesses in the financial capability of Americans is a first step to creating mitigating policies that can prevent financial setbacks. For instance, we find that being financially literate lowers the likelihood of being financially fragile, independent of an individual’s level of educational attainment. Thus, policies can be implemented to provide financial education at the school, workplace and community levels. Policies that address saving for retirement have traditionally targeted tax and non-tax incentives, such as pre-tax retirement accounts. Through our analysis, we will show that incentives are also required for individuals and families to save and build resilience in the short term.


Duties: Help with collecting relevant literature

Read relevant literature and do a literature review

Provide help in collecting figures and data at aggregate levels

Assist in the data analysis according to expertise


Time commitment: 10 or more hours per week (average)


Credit hour option*: 3


Submit Cover Letter/Resume to: alusardi@gwu.edu


*If credit is sought, all registration deadlines and requirements must be met. Students selected to be research assistants should contact Ben Faulkner at benfaulkner@gwu.edu whether they intend to pursue credit or not.