Why Janet Yellen is urging families to boost savings

WASHINGTON - The Great Recession showed that a large number of American families are "extraordinarily vulnerable" to financial setbacks because they have few assets to fall back on, Federal Reserve Chair Janet Yellen said Thursday

Yellen said a Fed survey found that an unexpected expense of just $400 would force the majority of American families to borrow money, sell something or simply not pay.

"The financial crisis and the Great Recession demonstrated, in a dramatic and unmistakable manner, how extraordinarily vulnerable are the large share of American families with few assets to fall back on," Yellen said in a Washington speech.

She said the bottom fifth of households by income -- about 25 million households -- had median net worth in 2013 of just $6,400, and many of these families had nothing saved or negative net worth, meaning their debts were greater than their assets.

Yellen said that the Fed's 2013 Survey of Consumer Finances, an in-depth analysis of family wealth, found that the next one-fifth of households had a net worth of only $27,900 in 2013 and that both of the bottom two-fifths of households had seen declines in net worth since the Fed's last survey in 2010. She said one reason for this decline was that incomes for these families had continued to decline.

"For many lower-income families without assets, the definition of a financial crisis is a month or two without a paycheck, or the advent of a sudden illness or some other unexpected expense," Yellen said.

Her remarks were delivered by video to a conference sponsored by the Corporation for Enterprise Development, a national nonprofit organization that seeks to expand economic opportunity for low-income families.

Yellen said that families with assets can treat financial setbacks as a "bumps in the road. Families without these assets can end up, very suddenly, off the road."

She said that the Fed wanted to promote efforts to encourage families to take small steps that could over time lead to the accumulation of assets.

Yellen said nothing in her brief remarks about the Fed's interest rate policies. The Fed on Wednesday concluded a two-day meeting in which it kept interest rates at a record low and retained language in its statement that rates should remain low for a "considerable time" after its bond purchasing program comes to an end in November.

Yellen told reporters at a news conference after the meeting that she felt while there had been improvements in the economy, the job market still faced a number of problems, including weak wage growth.