The United States consists of about 125 million separate households, each one with its own unique set of financial circumstances.
Some households work like economic pressure cookers; they’re overheated by delinquent loan payments, unpaid credit card balances, overdue bills, unbudgeted emergencies, nonexistent savings, and the like.
Some households run much cooler, and work more like soft serve ice cream machines. Stress is lower because typically there’s plenty of money to pay ongoing expenses. Many months, there’s even enough left over for savings (which is very cool indeed).
Economists love to study household finances. The Federal Reserve Board, for example, sponsors an annual Survey of Household Economics and Decisionmaking (SHED). SHED poses dozens of questions covering such diverse topics as savings, economic preparedness, housing decisions, auto lending, student loans, and retirement planning. The most recent SHED was released in May 2016 and reflects the answers of 5,462 respondents.
If you’re interested about whether your household works like a pressure cooker or more like a soft serve machine, SHED can SHED some light on the subject. Experts have spent countless hours composing the clearheaded questions best suited to assess economic well being. If you want, you can use these expertly formulated queries to assess your own circumstances—and as a bonus you can see how your answers compare to a representative sample of all US households.
I’ve set up a very rough scoring system to measure your fiscal well being. For each answer you provide, you receive a defined number of points. A maximum score is seventeen points; if you tally fourteen points or above, your finances probably pose little if any discomfort.
To keep the size of this quiz manageable, I’ve cherry-picked the SHED questions that reveal the most about whether you live within your means. If you want to peruse other SHED questions, visit Appendix C of the Federal Reserve’s full report by clicking here.
SHED on Bills and Loan Payments
An important test of economic well being is how a household handles recurring bills and loan installments. Pose these several questions to yourself and compare your answers to those of SHED households. For each question you answer “no,” give yourself one point for either being current with the obligation or avoiding it altogether.
|Question I12. In the past year, did you (and your spouse/partner) have any months where you struggled to pay your bills either because your income was unusually low or because your expenses were unusually high?|
|Note: Number of unweighted* respondents = 3,069|
This question as phrased is addressed to homeowners, but if you rent give yourself a point if you haven’t been late on two or more monthly payments.
|Question M2. In the past 12 months, have you (or your spouse/partner) missed two or more payments on your mortgage?|
|Note: Number of unweighted respondents = 2,202|
Student Loan Payments
|Question SL6. Are you behind on payments or in collections for one or more of the student loans from your own education?|
|Note: Number of unweighted respondents = 712|
Auto Loan or Lease Payments
|Question AL2. In the past 12 months, have you (and/or your spouse/partner) missed or been late making any payments on your auto loan or lease?|
|Note: Number of unweighted respondents = 1,894|
Medical Expense Payments
|Question E2B. Do you currently have an unpaid balance or owe any debt related to the unexpected major medical expenses that you had in the past 12 months?|
|Note: Number of unweighted respondents = 1,349|
SHED on Credit Card Balances
Anyone can live in harmony with their little slabs of polyvinyl chloride acetate (PVCA) provided they follow one simple rule:
pay credit cards off completely, without fail, each and every month, and never, ever carry a balance.
This rule is vitally important for your financial well being, so if your answer to the question below is “[n]ever carried a balance,” award yourself three points. Otherwise, you receive no points at all. Why? Because credit card debt creates fiscal stress unnecessarily and pointlessly—so no points for you.
|Question C4A. In the past 12 months, how frequently have you carried a balance on one or more of your credit cards?|
|Never carried a balance (always pay in full)||42.4|
|Some of the time||19.7|
|Most or all of the time||31.4|
|Note: Number of unweighted respondents = 4,419|
SHED on Emergency Spending
Since unexpected expenses happen to everyone, a well-endowed emergency fund is a key to financial serenity (in fact, this particular stash of cash might better be called an “inevitability fund”). If you don’t have an emergency/inevitability fund already in place, you should create one as soon as possible.
A “yes” answer here gets you one point.
|Question EF1. Have you set aside emergency or rainy day funds that would cover your expenses for 3 months in case of sickness, job loss, economic downturn, or other emergencies?|
|Note: Number of unweighted respondents = 5,642|
Source of Emergency Funds
This question explores various strategies for coping with an unexpected expense. Award yourself one point if you: (1) pay by credit card (provided you pay it off in full at the next statement); or (2) pay cash or with money from a checking or savings account.
|Question EF3. Suppose that you have an emergency expense that costs $400. Based on your current financial situation, how would you pay for this expense? If you would use more than one method to cover this expense, please select all that apply.|
|Put it on my credit card and pay it off in full at the next statement||28.6|
|Put it on my credit card and pay it off over time||17.4|
|With the money currently in my checking/savings account or with cash||46.6|
|Using money from a bank loan or line of credit||3.1|
|By borrowing from a friend or family member||12.6|
|Using a payday loan, deposit advance, or overdraft||1.9|
|By selling something||7.9|
|I wouldn’t be able to pay for the expense right now||13.9|
|Other (please specify)||2.1|
|Note: Number of unweighted respondents = 5,642|
Size of Emergency Fund
At a minimum, you need to handle a $400 crisis, so award yourself a point only if you answer “[o]ver $400.”
|Question EF4. Based on your current financial situation, what is the largest emergency expense that you could pay right now using cash or money in your checking/savings account?|
|$100 to $199||15.7|
|$200 to $299||13|
|$300 to $399||8.7|
|Note: Number of unweighted respondents = 2,539|
SHED on Living Within Your Means
Finally, we reach the crux of frugality. Spend less than what you make, do it year in and year out, and you have great prospects for economic well being both in the present and in the future.
Spending Compared to Income
If you spend everything you earn, you’re likely experiencing financial discomfort. So award yourself one point only if your answer to the question below is “[l]ess than your income.”
|Question I1. In the past 12 months, would you say that your (and your spouse/partner’s) total spending was:|
|Less than your income||50.8|
|The same as your income||32.6|
|More than your income||16.1|
|Note: Number of unweighted respondents = 5,376|
The more you’re able to sock away each year, the brighter your outlook. Award yourself one point for savings of “1 to 5 percent” and one additional point for each listed savings level above that up to a maximum of five points for having saved “[o]ver 20 percent.”
|Question I2. In the past 12 months, about what percent of your (and your spouse/partner’s) total gross income (before taxes and deductions) did you set aside as savings?|
|1 to 5 percent||27.1|
|6 to 10 percent||18.6|
|11 to 15 percent||9.2|
|16 to 20 percent||6.3|
|Over 20 percent||7.2|
|Note: Number of unweighted respondents = 4,032|
Award yourself one point only if you maintain at least three different types of retirement savings vehicles as listed below.
|Question K2. Do you currently have each of the following types of retirement savings or pension?|
|401(k), 403(b), or other defined contribution plan||47.9|
|Pension with a defined benefit||24.9|
|IRA or Roth IRA||27.3|
|Savings outside a retirement account||40.8|
|Ownership of real estate or land to generate income in retirement||14.5|
|Ownership of my business||5.7|
|Other retirement savings||9.9|
|Note: Number of unweighted respondents = 4,126|
* * *
I hope you scored high on these fantastically formulated financial questions. If your points are lower than you like, don’t despair. The path of frugality is a great stress reliever.
The next SHED is scheduled for release in May, 2017. I’ll write a new post then.
* Because the respondents’ demographics may differ from that of the overall U.S. population, SHED survey results are weighted to match characteristics from the Census Bureau’s March 2015 Current Population Survey.
Photo by Maria Keays
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