Businessman drowning in the sea and asks for help

Even before Covid-19 hit, millions of U.S. households had little ability to absorb a financial crisis, according to new research from the FINRA Investor Education Foundation.

In a report, the investor education arm of the U.S. self-regulatory organization said that before the pandemic, nearly four in 10 households scored poorly for financial resilience based on factors such as high debt, low savings, volatile income and low financial literacy.

Only 15% of households were classified as resilient by researchers.

Another third of households were ranked as “steady,” with stable income and savings and little debt, but low literacy. Another 14% were living paycheque to paycheque, but had more of a cushion than the least resilient households.

“Prior to the pandemic, nearly 40% of American households faced financial circumstances that constrained their ability to respond to financial crises,” said Gerri Walsh, president of the FINRA Foundation. “This does not bode well for a broad swath of American households looking to rebound from the financial and economic distress associated with the pandemic.”

The research also found that Black and Hispanic households were particularly at risk — nearly half of the survey respondents that scored lowest for financial resilience identified as racial minorities (22% Hispanic, 16% Black, 6% Asian), the report noted.

“Our research certainly gives advocates, policymakers and others a more complete picture of the disparities that exist and provides a roadmap to start to address these areas that contribute to financial resilience and, consequently, financial stability,” Walsh said.