| Job Loss, Income Loss & Credit Risk |
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| Income loss can significantly affect future credit risk & behavior |
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| Unemployment can cause serious financial stress. About 40% of all Americans live from paycheck to paycheck and cannot afford any loss of income. Government unemployment compensation benefits, though helpful, are insufficient to maintain an adequate standard of living. For example, the government unemployment insurance program replaces only a portion of eligible unemployed individual’s lost income for a limited time, which is typically 26 weeks. |
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| Studies show that since 1990, the percentage of lost income replaced by government UI benefits across the 50 states has fallen five percentage points, and in 1999, UI benefits replaced only 33% of an average individual’s lost earnings, which for 2005 was just $267 per week. |
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| Of all unemployed people, about half lose their jobs involuntarily i.e., for no fault of theirs (layoffs, restructuring, outsourcing, etc.) |
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| The data shows that of the average number of total unemployed each month, involuntary job losers are about 44% (currently about 3.5 million people), and the current average duration of unemployment is over 17 weeks. In fact, the percentage of people unemployed for long durations i.e. over 26 weeks is at higher levels not seen in about 20 years. |
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| A nationwide survey by Scorelogix of over 1000 participants shows that over two-third of respondents have a savings rate of 3% or less, consider unemployment somewhat likely to certain in near future, have no unemployment contingency fund, and plan to rely primarily on government unemployment benefits if they face unemployment. Unfortunately, most of these people could face severe financial stress if unemployed, given their inadequate level of financial preparedness and the fact that government benefits are marginal at best. |
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Unemployment Can Severely Damage Credit |
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It is clear that unemployment can cause great financial stress and burden, which could seriously damage credit ratings eventually, and there is a definite need and value in predicting unemployment risk for individuals so that they can understand and evaluate their potential unemployment risk, make informed decisions that enhance their level of preparedness, and adopt financial and career strategies that decrease their unemployment risk and maximize income and career potential.
In fact, loss of income due to unemployment is the single largest driver of bankruptcies, credit card and other loan delinquencies and losses.
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