Even with two adults on above minimum-wage jobs, a household’s finances can seem fairly hard to reconcile. Throw sudden unemployment into the mix, and it can quickly feel like an irretrievably sinking ship.
A small glimmer of hope is that the unemployment rate in the US is at its lowest rate since mid-2008 at 7.6%, and the decline in mass unemployment doesn’t seem to be slowing down anytime soon. Furthermore, we’re not doing to bad in comparison with other civilized countries – we’re slightly ahead of the UK, and Europe as a whole currently stands at over 11% (though a few countries like Spain and Greece, at a whopping 27% each, skew that average).
But statistics are famously ineffective for painting the whole picture, and percentages such as these don’t provide much comfort to those who are unemployed… and given the size of the population, that innocuous-looking 7.6% equates to a very real 12 million working-age adults out of work.
That number nearly doubles to 22 million if you include people who are in a job but not getting enough hours to make ends meet.
The Shock of Unemployment
Earlier in the year, an interesting report was issued as part of the Economic Mobility Project being conduced by Pew (a superb charitable research group). The report didn’t receive much fanfare in the mainstream media, which is a shame because it provides an incredibly insightful look into how unemployment and poverty has actually affected real families across America.
Through a series of interviews with over fifty families hailing from all walks of life, two things that emerge from the report are clear: that families who are already on a low income are at a greater risk of job loss, and that people deal with sudden financial hardship in a myriad different ways.
While neither of these conclusions are particularly surprising, one worrying side effect which is highlighted in the report is that the unemployment can affect a family’s future long after they’re back to work – those who don’t have access to savings or support from extended family often use their retirement funds or children’s college savings to bail themselves out of short-term strife.
As we’ve pointed out earlier on this blog, this is a realistic prospect for a lot of people since the overwhelming majority of Americans (76%, to be exact) don’t have much in the way of emergency savings to fall back on.
We’ve also discussed just how desperate people can get when financial stress becomes unbearable – while a family having to use up their retirement fund to pay utility bills is tragic, being left with no other option but to rely on an illegal loan shark is even worse. Moreover, there’s no reason why this should be a reality for so many people in a first world country.
A Compounded Problem
The effects of poverty are also self-perpetuating causes. Families plunged into an unemployment crisis – even if only in the short term – can suffer a tangible impact on their health, both psychologically and physically. Depending on the makeup of the family in question, this can deeply affect children in the household and put them on a less than desirable trajectory into adulthood (and one that can be difficult to change). Truly, children are often the biggest victims in an unemployed household and also the ones who have least power to change things.
One affect of this kind of poverty (and also a cause) is substance abuse, arguably one of the most destructive aspects of this situation. It’s dangerous to assume that this is a problem faced only by the super-impoverished, too, or that the typical drug user sleeps on a dirty mattress with a needle sticking out of his or her arm. In reality, it’s an extremely widespread problem and virtually anyone regardless of their background is susceptible to substance abuse, and unemployment can be a big catalyst for this.
Escaping the Cycle
Utility bills and other expenses couldn’t care less whether someone is down on their luck. They’ll just keep on coming, regardless of a household’s ability to pay them.
While it’d be foolish to pretend that this vicious cycle of debt is easy to escape, it’s not impossible. As indicated by the aforementioned Pew report, people react to unemployment in different ways – some better than others – and taking a pragmatic approach to personal finances when one or more people in a household is out of work is key. This applies equally to keeping a positive mindset as well as making sound financial decisions.
In the short term, we’re available to help by providing a line of credit to help smooth things over between tough months. For most people, this is a better option than having to sell assets or dip into college or retirement funds, so don’t hesitate to contact us if you’d like to discuss your borrowing needs with no obligation.