How to pay off your debt with frozen money
When you’ve got a large, complex debt, you’re probably going to need some sort of form of financing.
But if you’ve just recently been forced to close a shop or get out of a job, what can you do with that money?
That’s what the latest research from the US Federal Reserve and the Bank of England has revealed.
In a study published in the Federal Reserve Bank of New York’s quarterly Economic Review, economists Thomas Smeets and Michael Deacon looked at how well people managed their savings and how much they made using the money they received from the government.
“The general finding was that people with high savings rates had a significantly better financial picture than those with low savings rates,” Smeettes and Deacon wrote.
“For most people, that was the difference between being able to afford to live and being able a living wage.”
In other words, those with high incomes made money when it came to paying for the things they needed to survive.
But low-income people often didn’t have that money to spend.
So the researchers set out to understand how low- and middle-income Americans made ends meet, including how much money they earned and how long they spent in that situation.
They asked participants to answer two questions about their financial situation.
How much money did you have available at the end of each month?
How much did you earn each month in cash?
The answer, unsurprisingly, depends on your income.
For the middle-class respondents, the answer was about the same.
The results showed that low- income people with higher incomes tended to have more money available than those in the middle.
But they also had more cash available than the average person in that income bracket.
They also had higher levels of savings and a larger portion of their money was held in the form of cash.
Those at the bottom were less likely to have a large amount of cash available to spend than their counterparts.
This suggests that those at the top of the economic ladder, who are not as well off as the middle class, may not have a lot of disposable income to spend on basic necessities like food, rent and clothing.
“Low- and moderate-income households had significantly more savings than high- and moderately-income families,” Smesets and Deacons wrote.
The researchers also examined how much people earned on average per month.
They found that those in households with less than $25,000 in annual income had significantly less money to invest than those who made $25K or more.
And those who had at least $75K in savings were also less likely than those making less than that to have money to buy anything.
The authors also found that people in households earning less than about $25k per year had significantly lower levels of income and less savings than those earning more.
But for those in families earning more than $75k per person, the situation was similar.
“In this study, we found that low and moderate income households reported significantly more wealth and income at the lower end of the income distribution than high income households did,” the authors wrote.
In otherwords, the wealthy may not be able to spend much on basics like food and rent, but they do have a very, very good chance of getting a decent chunk of it.
They could also be spending more than that.
“This study suggests that low income households may have more resources to spend in their daily lives,” Smsets and deacon concluded.
It’s unclear how much of the difference is because low- to moderate- income households have lower savings, but it could be because low income people spend a larger percentage of their incomes on housing and other necessities.
What about people with college degrees?
The authors found that middle- and high-income college graduates had significantly higher levels than lower- and higher-income students of money to keep in the bank and, at the very least, a better chance of saving for retirement.
The data was more nuanced than the research on low-to-moderate-income earners, however.
Smeetts and Deak said they found that college graduates with more than a high school degree were more likely to be able “to maintain sufficient financial assets to sustain a stable standard of living, with sufficient income to meet current expenses and support their children and families.”
They also found higher levels for those with a bachelor’s degree, but not more.
The findings also suggest that students who were more than three years into their studies had a higher chance of accumulating sufficient savings, which is not the case for those who only have a high-school diploma.
The implications of these findings for retirement, too, could have implications for people in their 30s and 40s who don’t have a whole lot of savings.
But it could also affect people in retirement.
“Retirement is a difficult time for many people,” Smedses said.
“But when you get a higher income, the financial situation becomes a lot better, and people are better able to maintain that level