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The sorry state of America's household finances

While the economy is rebounding and more jobs are created every month, there's a puzzling disconnect with many American families, who remain gloomy about the economy and their personal outlook.

There's a very good reason for that anxiety, it turns out. According to a new study from The Pew Charitable Trusts, the financial "balance sheets" of American families are tattered and strained, thanks to stagnant wages, a lack of savings and rising debt levels.

The study, which is part of a new push at Pew to study the impact of Americans' financial choices and how policy decisions may impact personal economic stability, offers some fairly sobering data about what it calls household balance sheets, or the combination of income, expenditures and wealth. For one, the decade from 1999 to 2009 delivered only a 2 percent rise in wage growth for American workers, representing a sharp turn-about from the 22 percent in wage gains recorded from 1979 through 1999.

That's left seven out of 10 Americans strained by financial issues ranging from crushing debt loads, insufficient savings or income that's too low to cover their expenses, Pew said.

"Despite the national recovery, many families feel vulnerable and stressed," said Diana Elliott, research manager at Pew, where she focuses on American families' financial security and mobility, on a conference call to discuss the results. "Family finances are key to future mobility. Even families with relatively high income are walking a financial tightrope."

Keeping liquid savings on hand in case of an emergency is one area where Americans of all income brackets are falling short, the study found. While the bottom quintile of American households only has about 9 days of liquid savings -- such as money in a checking or savings account -- available, the top quintile is also far from achieving stability. Despite financial advisors' rule of thumb to keep three to six months of liquid savings on hand, the country's top earners have only an average of 52 days of liquid funds available.

Even when adding in more illiquid savings, such as retirement accounts and investments, the average middle-income household is unprepared to handle a big economic shock, according to the study, which is based on data from a variety of sources including the Congressional Budget Office, the U.S. Census Bureau's Current Population Survey and the University of Michigan's Panel Study of Income Dynamics, among others.

Yet out-of-control spending doesn't appear to be the issue with why Americans have a lack of savings. In fact, the recession caused American households to tighten their spending, which eroded two decades of consumption growth, Pew said. The net increase in average annual household spending has inched up only 2 percent since 1990 because of the dip in the recession. In the 22 years before the recession started, household expenditures grew by 16 percent.

Adding to the difficulties of maintaining a strong household balance sheet are significant fluctuations in family income, with Pew noting that almost half of all households saw either a drop or gain of more than one-quarter of income in a two-year period. Erin Currier, director of Pew's financial security and mobility project, said the researchers weren't sure what is causing the high rate of income volatility, although it could be family members taking time off from the labor market to take care of children or older relatives, or job losses.

"Having a gain or loss of 25 percent is very high on a month-to-month basis, so that is likely contributing to families' inability to build a financial cushion," she said.

The research adds depth to previous studies and polls about American anxiety over their economic future. About 55 percent of Americans say their income is falling behind the cost of living, a poll from Pew Research found earlier this month. Only 6 percent said their income is going up faster than the cost of living.

Many households, from low-income to high-income, are still struggling to regain their footing after the recession, which led to job losses and declines in housing and investment values. Middle America has slipped into "dissavings," when spending is greater than income, thanks to stagnant wages and a decline in those asset values, New York University economics professor Edward N. Wolff found in a recent paper.

Still, Americans aren't necessarily spending their money on fripperies. Pew found that spending on housing, health care, insurance and pensions rose, while spending on non-essentials such as food and entertainment decreased or stayed flat compared with other areas.

Housing remains the biggest expense for Americans, taking up about 31 percent of average annual expenditures, the Pew study found. But those in the bottom quintile are spending a bigger portion of their income on housing costs, at 40 percent.

The frayed state of American household finances doesn't bode well for economic mobility, the researchers said. Without a stable financial base, Americans have less of a chance to help their children get ahead.

"Families are in a precarious position," Currier said. "It does create a challenging situation where they can't be mobile if they can't be first economically secure."

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