A Lesson in Financial Fragility

A recent study by the National Endowment For Financial Education (NEFE), conducted by the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University, has discovered a serious financial related problem affecting millions of American citizens; it has found that in a sudden emergency, one in three people are unable to financially handle the situation. The term that has been coined to describe this dire situation is “financially fragile.”

Respondents to the survey were asked questions regarding financial preparedness and whether or not they were able to access and spend $2,000 within one month of being faced with an emergency. The analysis was conducted by using survey data along with discussion group findings. Billy Hensley, Ph.D., the senior director of of education at NEFE, said “if you’re getting money back from Uncle Sam this tax season, consider investing this windfall toward starting or growing an emergency savings fund.”

Researchers found three main reasons why financial fragility occurs in the first place:

  1. High Debt

  2. Lack of Assets

  3. Low Financial Literacy


One may think that a higher income may shield an individual from becoming a victim of financial fragility, but this is not the case. According to the study, thirty percent of people who are suffering from financial fragility are in the middle class income bracket, and twenty percent had an annual income of $75-100k. And according to Annamaria Lusardi, Ph.D., academic director of GFLEC, “financial fragility does not mean simply lack of precautionary savings. Heavy indebtedness can also make individuals financially fragile.” If an individual has high debt, avoiding financial fragility is not as simple as increasing income or working on savings. An important goal toward becoming financially strong is to dodge uncontrollable debt, which can be done through financial literacy.

Financial literacy can help individuals focus on the skills and knowledge needed to make resourcefully informed decisions about managing money; it can also help to guide individuals by creating budgeting techniques and encouraging the smart use of funds such as tax returns and bonuses. Instructors of financial literacy courses can help people set realistic goals and act as a cheerleader in support of attaining them. A tax-exempt 501 (c) (3) approved nonprofit organization like Catalyst Academy is a great resource for financial literacy training because classes are offered for low and no cost! With tax season coming up fast and New Year’s resolutions right around the corner, adding financial literacy training to your schedule may be just the thing you need to avoid becoming financially fragile. Click here for more information on services. Financial freedom is right around the corner!