WASHINGTON (MarketWatch) -- Insecure about your finances? You're not alone. Economic insecurity in the U.S. is at its highest point in 25 years, according to a report released late Wednesday.
Almost one in five Americans are estimated to be insecure in 2010, compared with less than one in eight in 1985, according to the report from the New York-based philanthropy Rockefeller Foundation, and Jacob Hacker, a political science professor at Yale University."There is a clear long-term upward trend in the economic insecurity of American families," Hacker said in a statement.
"And while economic insecurity is substantially higher for less affluent and educated Americans than for other groups, it has risen across virtually all parts of American society -- it's an issue squarely confronting the American middle class."
The report defines the economically insecure as those whose available household income fell by at least 25%, after adjusting for inflation, from one year to the next due to a decline in household income, and/or an increase in out-of-pocket medical spending. The economically insecure also lack an adequate financial safety net.
Economic security fluctuates with the health of the general economy, according the report. "When the business cycle experiences an upturn, Americans' odds of suffering a large fall in income decreases," the report said. "But this cyclical pattern has been accompanied by a gradual rise in the overall prevalence of economic insecurity in good times as well as in bad."
The 'new normal'
Between downturns, economic security has not returned to prior levels, the report said. "The 'new normal' in each subsequent economic cycle has featured a higher level of economic insecurity," the report said.Economic security varies by income level. On average, among the poorest Americans, almost 21% "suffered a major economic loss" from one year to the next between 1997 and 2007, compared with a rate of about 12% for those in the richest households.
"In other words, lower-income households have roughly double the prevalence of economic insecurity, compared to those with the highest incomes," the report said.
The rise in large economic losses is due to higher indebtedness, out-of pocket medical costs, and a "gradual but clear rise in the chance of individuals experiencing large declines in their household income," the report said.
Since the 1970s, earnings for men have become more unstable, according to the report. "The rising prevalence of two-earner couples does not appear to have provided a big income cushion to families," the report said.
"This may reflect the fact that income gains for the middle class have been relatively muted over the period studied so that families are working harder for only modestly more income while facing large price increases for health care," the report said.
When looking at household type, the report said that individuals living alone have the lowest level of insecurity; next come households of at least two adults without kids; then households of at least two adults with kids; and finally single-parent households have the highest insecurity.
Going forward, the level of unemployment will be key in determining economic insecurity, Hacker said.
"When unemployment is higher," he said, economic insecurity "is higher."
