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Why so many Americans in the middle class have no savings

Could you come up with $2,000 in 30 days if you had to? As many as 40 percent of American families can’t, despite the improving economy. Among them is Neal Gabler, who is frequently broke despite his successful career as a writer. As part of a collaboration between The Atlantic and the PBS NewsHour, Judy Woodruff looks at why Gabler and so many other Americans are struggling with savings.

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  • HARI SREENIVASAN:

    But first: financial fragility.

    Most American households did slightly better economically in 2015 than 2014, according to a recent survey by the Federal Reserve; 69 percent said they were living comfortably or doing OK, up from 65 percent. But 31 percent said they were either struggling to get by or just getting by, a figure that includes millions of middle-class Americans.

    In fact, it can be surprising to learn just which Americans continue to struggle.

    Judy Woodruff has the latest in our series with "The Atlantic."

  • JUDY WOODRUFF:

    By almost any measure, Neal Gabler has led a successful life. He's published respected biographies of Walt Disney, Barbra Streisand, and Walter Winchell, written for leading newspapers and magazines, taught at prestigious universities.

    He's a husband and the father of two daughters, now launched in their own successful careers. He lives in New York's Long Island enclave the Hamptons, a place of natural beauty and mecca for wealth and celebrity. And yet, for years, Neal Gabler harbored a mortifying secret.

  • NEAL GABLER, Author/Journalist:

    It's very difficult. I will tell you who it's really been difficult on is my wife.

  • JUDY WOODRUFF:

    Being the writer that he his, Gabler decided to come to terms with his secret by writing about it.

  • NEAL GABLER:

    I never write about myself. So I didn't embark on this project saying, oh, gosh, I can't wait to write about my own failures, which is basically what the article is about.

    But, really, the spring of this piece was reading a news item about the Federal Reserve household economic survey, in which they asked the question, if you had a $400 emergency, could you meet that emergency? And 47 percent of the respondents said that they couldn't meet that emergency without either having to borrow money or to sell something.

    And I read that item and I said to myself, well, who knew? But, of course, I knew, because many, many times in my life, and not just in the distant past, but in the unfortunate present, I couldn't afford those $400.

  • JUDY WOODRUFF:

    And that's the hard truth. Despite all his outward signs of success, Neal Gabler is frequently broke. His recent story in "The Atlantic" magazine brought widespread attention to that fact.

    Did you hesitate at all about baring your personal life?

  • NEAL GABLER:

    Very much so. I'm not the kind of person who really likes to expose himself. But then that reluctance became part of the article itself, because I coined the term in the article financial impotence.

    And it struck me that talking about our financial situation is very much like men not wanting to talk about sexual impotence. It's just not something you do. It's an embarrassment. It's a shame. It's a humiliation. And financial problems are exactly the same thing.

    So, I thought perhaps I can help those people who feel shamed and embarrassed and humiliated and show them, look it, I'm willing to do this. I'm willing to expose all of my faults, all of my mistakes, all of my failures. You're not alone.

  • JUDY WOODRUFF:

    Gabler knew he wasn't alone even before writing the article, due to weekly chats with Brian Brunjes, an East Hampton butcher.

  • NEAL GABLER:

    Brian the butcher is my friend. He's a wonderful, easy guy to talk to.

    And gradually, over time, we would start getting our financial situation, very, very rare, particularly among men. And I remember one day especially, this was one of those periods where I didn't have the $400 — and, unfortunately, they come all too frequently.

    And he said, I'm going to tell you something. He said, I am in the same situation. I have got this expense and that expense. If anybody tells you that they're sailing through, they're lying.

  • BRIAN BRUNJES, Butcher:

    Everybody struggles. I have a child with autism. He was diagnosed 20 years ago. My wife had to stop working. Became a one-income family. We accumulated a lot of outside expenses. So, I struggled. But you know what, I got to do what I got to do.

  • NEAL GABLER:

    And that was almost the final push to write the piece, because, you know, he's right. There are so many people in trouble. They won't talk about it. Brian is one of the very few who would be open with me, and I was able to be open with him as a result. So we were able to share this.

  • BRIAN BRUNJES:

    It kind of like took a weight off my shoulder knowing that a guy like Neal, he's got a house in East Hampton, you figure, ah, you know, he's doing all right for himself. But he's not. Everybody's struggling. And it's tough.

  • EDWARD WOLFF, New York University:

    The middle class is in desperate straits.

  • JUDY WOODRUFF:

    Edward Wolff is a professor of economics at New York University.

  • EDWARD WOLFF:

    Today, the average family has enough financial reserves to keep going for about three weeks. That's it. And that's middle-income. And if you go further down the ladder, basically, the financial reserves keep the family going for a couple days at most. And so these financial reserves are just completely evaporated. It's incredible.

  • ANNAMARIA LUSARDI, George Washington University:

    We came up with this word, financial fragility, when we thought of looking at the capacity of families to bear a shock, to face a shock.

  • JUDY WOODRUFF:

    Annamaria Lusardi is an economist at George Washington University.

  • ANNAMARIA LUSARDI:

    And the way we formulated the question is, how confident are you that you could come up with $2,000 if an unexpected need arose within the next month? And what we found is 40 percent of families could not come up with $2,000 in 30 days. So it's important to recognize that, that the financial fragility is just so widespread.

  • EDWARD WOLFF:

    The main reason is that we have had a long period of wage stagnation in this country, even — going further back, even to the mid-1970s.

    So, in the face of stagnating incomes, what did families do? Well, for a while they did accumulate wealth, and this was buoyed by the housing price boom of going forward until 2006, and then suddenly the housing market collapsed, and so did net worth.

  • JUDY WOODRUFF:

    How much of what you would describe as your financial condition is due to decisions that Neal Gabler made, and how much of it is due to outside circumstances beyond your control?

  • NEAL GABLER:

    That's a great question, and I want to take responsibility.

    I don't want to put everything off on these larger financial forces. I chose to become a writer. This is the most financially perilous profession that one can possibly imagine, except possibly being an actor.

    I chose to live in New York City because I thought I needed to be close to magazines and publishers that I needed for my writing career. So I did that. And New York is expensive. I chose to have two children. Children are expensive.

    I made the choice to send them to expensive colleges, so those were all choices that I made that had serious financial consequences, but, again, those choices were what I call life.

  • JUDY WOODRUFF:

    So many young people today are told, find your passion and follow it. It sounds like that's what you did.

  • NEAL GABLER:

    That's exactly what I did. I followed my bliss, and I'm happy I did. So, I accept responsibility. On the other hand, since roughly half of Americans are suffering the same sort of financial fragility I'm in, we can't say that they're all imbeciles.

    What we have to say is that there are forces beyond our control.

  • JUDY WOODRUFF:

    Let me ask you a couple of other questions about personal decisions you made. You brought it up yourself, the decision to live here. We're in East Hampton. People think, living in the Hamptons? That's a really expensive part of America.

  • NEAL GABLER:

    You know, when people hear that I live in the Hamptons, the first thing they say to me is, oh, my gosh, you live in the Hamptons.

    What they don't really understand is that there are two Hamptons. There are the people who live here full time, as I do, who are not wealthy, and there are the people who come here during the summer who are.

    So, yes, I do live in the Hamptons. And when I bought this house, I could afford it. It wasn't exorbitantly expensive. I was able to afford it for a very long time.

    This is all cedar, but you can see how many shingles are missing here.

  • JUDY WOODRUFF:

    Right. Right. Right.

    These days, though, the house has fallen into disrepair. It's in desperate need of a new roof. Floorboards are rotting. It has not seen fresh paint in many years.

  • NEAL GABLER:

    If I had $100,000, I could probably…

  • JUDY WOODRUFF:

    You could get all this done.

  • NEAL GABLER:

    I could probably get it done.

  • JUDY WOODRUFF:

    Yes. Yes.

    Did you ever think about moving to a less expensive part of the country?

  • NEAL GABLER:

    We did. And we have talked about that. But here's the catch-22 of that. If we were — once the recession hit, the house lost its value, as it did for most Americans.

    So, now the house is deteriorating, it's lost its value. So if I had the resources to fix up the house to sell it, I wouldn't need to sell it. That's the catch-22. I am a financial illiterate, and financial illiterates pay a heavy price for their financial illiteracy.

  • JUDY WOODRUFF:

    Gabler is not using the term financial illiteracy loosely. It's a phenomenon economists say is a key factor in the current fragility of the middle class.

  • ANNAMARIA LUSARDI:

    We measure financial literacy by looking at basic financial knowledge. We are experiencing much more complex financial markets, much more complex financial products than in the past. And the knowledge of people has not kept up.

  • NEAL GABLER:

    Half of America will have to compromise on their dreams.

    There's one statistic that I cite in the piece from a USA Today survey which I think is fascinating. And that survey determined that a middle-class existence in America would cost $130,000.

  • JUDY WOODRUFF:

    A year.

  • NEAL GABLER:

    A year.

    The median income in America is somewhere around $50,000. So a middle-class existence was more than two times as great as the median income. And what that tells you is that the face of financial fragility is the face of the college-educated, as well as those without a high school diploma.

    It's the face of white America, as well as the face of minority Americans, who obviously suffer much greater. This is an equal opportunity situation. It affects so many of us. It's a great sadness to think that people feel compelled to give up their dreams of what they thought a modest middle-class life would be. But they have. They have. Even I have.

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