FINRA Foundation Study Reveals Financial Vulnerability of American Renters

WASHINGTON — The FINRA Investor Education Foundation released a new study, American Renters and Financial Fragility, which highlights the financial vulnerability of renters. American Renters reveals that renters tend to be less financially stable than homeowners, have lower rates of financial literacy and are more likely to experience a large drop in income. The findings suggest that, given their financial fragility and low levels of financial literacy, the renter population could have a difficult time responding to income shocks and the financial consequences associated with them.

According to the FINRA Foundation's new study, 24 percent of respondents who rent (rather than own) their home said it was very difficult to cover their monthly bills—double the rate of homeowners (12 percent). Renters were also much more financially fragile than homeowners. Fifty-eight percent of renters indicated that they probably or definitely could not come up with $2,000 in 30 days in the event of an unexpected expense, compared to 29 percent for homeowners.

"Data from the FINRA Foundation's National Financial Capability Study paints a troubling portrait of renters in the United States. Not only do renters tend to be more financially fragile than homeowners, renters significantly underperform homeowners on a test of financial literacy. Forty-five percent of homeowners were able to correctly answer at least four questions on a simple five-question test, while the comparable figure for renters was 28 percent," said FINRA Foundation President Gerri Walsh.

American Renters found that renters were lagging behind homeowners in saving for a rainy day. Only about one in five renters (22 percent) reported having enough money saved to cover their expenses for three months in the event of sickness, job loss, economic downturn or other emergency. By comparison, half of homeowners (50 percent) had a rainy day fund—yet emergency savings may be more important for renters because they are more likely than homeowners to experience income shocks.

The findings in American Renters highlight the dangerous combination of low financial literacy levels, financial fragility and increased likelihood of experiencing income shocks that renters face. This state of affairs raises serious questions about the ability of renters to make ends meet, which could have substantial repercussions for the renter population, including falling behind on monthly bills, using risky forms of credit and missing rent payments.

The FINRA Foundation's new study is based on an examination of data from the FINRA Foundation's National Financial Capability Study (State-by-State Survey), which was developed in consultation with the U.S. Department of the Treasury, other federal agencies and the President's Advisory Council on Financial Capability.

The data from the State-by-State Survey were collected through an online survey of 25,509 American adults (approximately 500 per state, plus D.C.), over a four-month period, July – October 2012. The sample used in this study was weighted by key demographic variables to be representative of the adult U.S. population. However, as in all survey research, there are possible sources of error – such as coverage, non-response and measurement error – that could affect the results. The full data set, questionnaire and methodology are available at www.usfinancialcapability.org.