6 ms·

Just 39% of Americans could pay for a $1000 emergency expense

36 points by walrus01 5y ago

version_five 5y ago
> 4 in 10 U.S. adults could absorb the cost of a four-figure car repair or emergency room visit by tapping into savings. > Fully 18 percent of respondents said they would put the expense on a credit card and pay it off over time, incurring interest charges. Another 18 percent said they could handle a surprise expense without borrowing, but would have to make room in their budgets by scrimping on other items. > An additional 12 percent said they would borrow from family or friends, while 8 percent said they would take personal loans. This is a good example of a misleading and sensationalized headline. 39% wasn't too surprising to begin with, but really another 18% could also handle it without borrowing, 12% had support to borrow the money and 18% + 8% more had available credit to handle it. That covers 95%. This is "adults" so I assume everyone 18+, which although maybe not ideal is pretty good considering how precarious so many people's positions are portrayed.
- codefreakxff 5y ago
  So… you’re saying it’s a sensationalized headline because 95% could cover it “somehow”? I think the missed point here is that while 65% have savings, there are 35% on the brink of financial disaster. I guess having to ask your family to help cover a $1000 bill does mean it got paid, but living under such conditions is exhausting.
  - notch656a 5y ago
    Inflation is balooning. Even before the recent large expansion of the money supply, holding cash is a losing proposition. Makes way more sense for emergency expenses to go on credit while you liquidate assets, rather than having cash sitting around waiting to get obliterated via invisible redistribution. I read this more as "lots of rational Americans have the collateral or access to collateral for a loan, and some subset of those can afford to get obliterated by inflation by holding large sums of USD."
    - codefreakxff 5y ago
      As I pointed out to another commenter, this is NOT about wealthy people worrying about how to best utilize their cash. These people are probably the 50% who are not on the verge of financial collapse. The concern I am bringing up is the people who have NO cash. Marginal credit. Have to figure out how to pay for food and medical care every week and are stressed out. The system is not working for about half of Americans
      - notch656a 5y ago
        Your concern is that people have to compensate the farmers who provide the food and the medical workers that provide their healthcare? 50th percentile household wealth (you cite half of america) is over $100k. Cry me a river for those people having to actually put their boots on to fulfill their obligations. They have the $1k, just might be tied up in assets, but they might cry you a sob story that they don't.
  - engineer1121 5y ago
    I'd include a lot of the cc crowd as well. I have a relatively large CC balance only because I almost always get >15% returns (my cc rate) in the market. Every once in a while I roll it over to a personal loan but if you are good at investing there's no worry about 15% interest when your main trading account is up 30%+ YoY.
    - Rebelgecko 5y ago
      I can't imagine that many people are able to maintain 30% growth over and extended timeline.
    - niij 5y ago
      You'd rather gamble on >=15% returns rather than just pay off that debt and get an immediate 15% savings? That may work in the short term but bull markets don't last forever.
  - perl4ever 5y ago
    >there are 35% on the brink of financial disaster. This seems like a caricature of the opinion of someone who grew up in the Great Depression and never accepted credit cards as legitimate tools. Saving money from your first good job until you had several months worth of salary was traditional advice, like, in the 1950s. In the Depression, my grandparents raised rabbits on the farm for food! Should we be concerned that the average person doesn't have any rabbits in reserve and is therefore on the brink of starving to death?
    - codefreakxff 5y ago
      I'm.. not even sure how to respond to this. I'll just address the underlying sentiment that credit card debt is just fine and totally normal. It's really a question of poverty vs convenience. If I use my credit card because it is convenient and I can pay off my bills, great. No problem. But if I am so poor that I have no choice but to put everything on a credit card, then every purchase is 10%, 20%, or even 30% more expensive - heck, it might be 3000% more expensive because there are many people who are making minimal payments just to get by every month. So, no, you silly analogy about your grandparents is not what we are talking about here. We are talking about people right now, today, who are living paycheck to paycheck, not sure how they are going to pay for food and for the medical care they need, and making really hard choices. And your mockery is inappropriate.
      - perl4ever 5y ago
        >I'll just address the underlying sentiment that credit card debt is just fine and totally normal. I think your point that a credit card can't save someone that consistently spends more than they earn is correct. Neither will a few thousand dollars in cash. I don't believe 60% of Americans are in this category anyway. I don't think anyone seriously does believe it. Do you? What we are talking about, in my view, is whether having substantial cash reserves has any relationship to risk of imminent financial disaster. Or if it's a weird anachronism.
        codefreakxff 5y ago
WheelsAtLarge 5y ago
We hear this a lot so it seems like most people are just at the edge of financial disaster. But what's left out is that most people spend as much as they earn so no matter how much they earn they would still be barely hanging on. I know there are plenty of people that are barely hanging on because they aren't earning enough money but many just don't know how to handle their finances. Here's someone complaining $200,000 is not enough. https://www.marketwatch.com/story/im-having-a-hard-time-understanding-how-earning-over-200000-a-year-is-too-much-to-qualify-for-a-decent-stimulus-check-2020-07-09?mod=home-page&link=sfmw_tw https://www.marketwatch.com/story/im-having-a-hard-time-unde...
- foldingmoney 5y ago
  >Here's someone complaining $200,000 is not enough. I don't think they're complaining that $200k isn't enough; they're complaining that it's unfair for them not to get a stimulus cheque when they pay a lot of taxes.
- andrewclunn 5y ago
  While I get your point, I took the article to be more in the vein of saying that the downturn hit everyone, so your previous year's income was a horrible metric for determining who should get stimulus. There are plenty of industries where there are boom and bust years. Paying for stimulus checks with debt, and then telling people, who may have also fallen on unexpected hard times due to covid, that they made too much (and also contributed more in taxes) the previous year to get help... I mean the author does have a case.
  - WheelsAtLarge 5y ago
    Yes, but these type of articles have been around even before Covid. Here's one from 2013 76% of Americans are living paycheck-to-paycheck https://money.cnn.com/2013/06/24/pf/emergency-savings/index.html https://money.cnn.com/2013/06/24/pf/emergency-savings/index.... And I'm sure you can find more even earlier than than that. I've found myself at the edge of my finances at some point but can the number be so large all the time in one of the riches country in the world?
ozzythecat 5y ago
> Fewer than 4 in 10 people have enough savings to pay for an unexpected $1,000 expense in cash. > The rest would have to borrow, use a credit card or take out a personal loan. What was the income distribution overall of folks in the survey? Do folks not have $1K specifically because they're living paycheck to paycheck, across income levels, or is it because they lack saving habits?
aaron695 5y ago
legitster 5y ago
This is such a silly question. Even if you are rich, holding onto gobs of cash is bad financial advice! I don't hold onto much more than $1k at a time and I make decent money. This is a terrible way to assess financial health.
- ferdowsi 5y ago
  Sound financial advice would be having an emergency fund of several months of expenses. You're doing it wrong.
  - PragmaticPulp 5y ago
    That's good advice when first starting your savings journey, but once you have a large amount of money invested (>12 months of expenses) you don't really need to keep an "emergency fund" in cash to cover months of expenses. It's 2022. It's trivially easy to convert investments into cash.
    - shric 5y ago
      Unless I need to, I don't like converting investments into cash due to capital gains tax (it's quite high here in Australia while earning at the highest tax bracket), so I keep about 6 months in cash
      - smabie 5y ago
        You would rather miss out on the returns entirely than pay capital gains taxes on a percentage of the profits? How does this make any sense?
        shric 5y ago
        6 months of cash isn't enough for it to matter to me.
    - idontwantthis 5y ago
      That's not covering unlikely, but devastating events very well. Also makes it harder to stay rational during a financial crash. I'll always keep significant cash accessible at an ATM for safety and sanity.
PragmaticPulp 5y ago
This misleading headline gets repeated over and over again because it gets clicks, but the survey actually asked a different question: Specifically, how would you pay for an emergency expense? They also allowed multiple answers in past years, which further clouded the results. The actual survey questions and results can be found here: https://www.bankrate.com/banking/savings/financial-security-january-2021/ https://www.bankrate.com/banking/savings/financial-security-... > We asked: How would you pay a surprise expense? > Facing a $1,000 expense for an emergency room visit or car repair, you would: > Pay the costs from your savings > Charge to credit card and pay over time > Pay it but cut spending on other expenses > Borrow from family or friends > Take a personal loan The number of people who chose "borrow from family or friends" or "take a personal loan" added up to 20%, so it's not clear how they got to a number suggesting that 61% of Americans simply couldn't pay for it at all. These studies get endlessly repeated in discussions about financial security in the United States, but they're always seriously misleading. Does anyone really believe that a majority of Americans would crumble when faced with a $1K expense?
- boring_twenties 5y ago
  My answer would be to charge to credit card and pay with my next paycheck. I suspect I'm not the only one. Now, how do we answer this question? I guess I would have to pick the credit card answer, even though I'm not paying it off "over time." And I guess that would count me as one of the people who couldn't afford it?
  - aworlph 5y ago
    Either "Pay the costs from your savings" or "Pay it but cut spending on other expenses", because you would have either saved or spent that part of next month's paycheck if your credit card balance wasn't $1000 higher than usual. If you don't carry a balance, the credit card is merely time-shifting the reduced spending/saving.
    - boring_twenties 5y ago
      The "cut spending" option seems reasonable to me, but I guess it would also count me as unable to afford it?
peanut_worm 5y ago
It is going to be frightening to see how many 80 and 90 year olds are still going to be working in a few decades.
oicu812 5y ago
Dave Ramsey's 7 Baby Steps to get control of your money [a]: Baby Step 1 - Save $1,000 for your starter emergency fund. I listen to his podcast all the time and it's still surprising to me that the callers on the show talk about building their savings for the emergency fund. Based on the real-life stories on the show, the 39% statistic presented in this article seems realistic. [a] https://www.ramseysolutions.com/dave-ramsey-7-baby-steps https://www.ramseysolutions.com/dave-ramsey-7-baby-steps

36 points by walrus01 5y ago

> 4 in 10 U.S. adults could absorb the cost of a four-figure car repair or emergency room visit by tapping into savings. > Fully 18 percent of respondents said they would put the expense on a credit card and pay it off over time, incurring interest charges. Another 18 percent said they could handle a surprise expense without borrowing, but would have to make room in their budgets by scrimping on other items. > An additional 12 percent said they would borrow from family or friends, while 8 percent said they would take personal loans. This is a good example of a misleading and sensationalized headline. 39% wasn't too surprising to begin with, but really another 18% could also handle it without borrowing, 12% had support to borrow the money and 18% + 8% more had available credit to handle it. That covers 95%. This is "adults" so I assume everyone 18+, which although maybe not ideal is pretty good considering how precarious so many people's positions are portrayed.

codefreakxff 5y ago
So… you’re saying it’s a sensationalized headline because 95% could cover it “somehow”? I think the missed point here is that while 65% have savings, there are 35% on the brink of financial disaster. I guess having to ask your family to help cover a $1000 bill does mean it got paid, but living under such conditions is exhausting.
- notch656a 5y ago
  Inflation is balooning. Even before the recent large expansion of the money supply, holding cash is a losing proposition. Makes way more sense for emergency expenses to go on credit while you liquidate assets, rather than having cash sitting around waiting to get obliterated via invisible redistribution. I read this more as "lots of rational Americans have the collateral or access to collateral for a loan, and some subset of those can afford to get obliterated by inflation by holding large sums of USD."
  - codefreakxff 5y ago
    As I pointed out to another commenter, this is NOT about wealthy people worrying about how to best utilize their cash. These people are probably the 50% who are not on the verge of financial collapse. The concern I am bringing up is the people who have NO cash. Marginal credit. Have to figure out how to pay for food and medical care every week and are stressed out. The system is not working for about half of Americans
    - notch656a 5y ago
      Your concern is that people have to compensate the farmers who provide the food and the medical workers that provide their healthcare? 50th percentile household wealth (you cite half of america) is over $100k. Cry me a river for those people having to actually put their boots on to fulfill their obligations. They have the $1k, just might be tied up in assets, but they might cry you a sob story that they don't.
- engineer1121 5y ago
  I'd include a lot of the cc crowd as well. I have a relatively large CC balance only because I almost always get >15% returns (my cc rate) in the market. Every once in a while I roll it over to a personal loan but if you are good at investing there's no worry about 15% interest when your main trading account is up 30%+ YoY.
  - Rebelgecko 5y ago
    I can't imagine that many people are able to maintain 30% growth over and extended timeline.
  - niij 5y ago
    You'd rather gamble on >=15% returns rather than just pay off that debt and get an immediate 15% savings? That may work in the short term but bull markets don't last forever.
- perl4ever 5y ago
  >there are 35% on the brink of financial disaster. This seems like a caricature of the opinion of someone who grew up in the Great Depression and never accepted credit cards as legitimate tools. Saving money from your first good job until you had several months worth of salary was traditional advice, like, in the 1950s. In the Depression, my grandparents raised rabbits on the farm for food! Should we be concerned that the average person doesn't have any rabbits in reserve and is therefore on the brink of starving to death?
  - codefreakxff 5y ago
    I'm.. not even sure how to respond to this. I'll just address the underlying sentiment that credit card debt is just fine and totally normal. It's really a question of poverty vs convenience. If I use my credit card because it is convenient and I can pay off my bills, great. No problem. But if I am so poor that I have no choice but to put everything on a credit card, then every purchase is 10%, 20%, or even 30% more expensive - heck, it might be 3000% more expensive because there are many people who are making minimal payments just to get by every month. So, no, you silly analogy about your grandparents is not what we are talking about here. We are talking about people right now, today, who are living paycheck to paycheck, not sure how they are going to pay for food and for the medical care they need, and making really hard choices. And your mockery is inappropriate.
    - perl4ever 5y ago
      >I'll just address the underlying sentiment that credit card debt is just fine and totally normal. I think your point that a credit card can't save someone that consistently spends more than they earn is correct. Neither will a few thousand dollars in cash. I don't believe 60% of Americans are in this category anyway. I don't think anyone seriously does believe it. Do you? What we are talking about, in my view, is whether having substantial cash reserves has any relationship to risk of imminent financial disaster. Or if it's a weird anachronism.
      - codefreakxff 5y ago

WheelsAtLarge 5y ago

We hear this a lot so it seems like most people are just at the edge of financial disaster. But what's left out is that most people spend as much as they earn so no matter how much they earn they would still be barely hanging on. I know there are plenty of people that are barely hanging on because they aren't earning enough money but many just don't know how to handle their finances. Here's someone complaining $200,000 is not enough. https://www.marketwatch.com/story/im-having-a-hard-time-understanding-how-earning-over-200000-a-year-is-too-much-to-qualify-for-a-decent-stimulus-check-2020-07-09?mod=home-page&link=sfmw_tw https://www.marketwatch.com/story/im-having-a-hard-time-unde...

foldingmoney 5y ago
>Here's someone complaining $200,000 is not enough. I don't think they're complaining that $200k isn't enough; they're complaining that it's unfair for them not to get a stimulus cheque when they pay a lot of taxes.
andrewclunn 5y ago
While I get your point, I took the article to be more in the vein of saying that the downturn hit everyone, so your previous year's income was a horrible metric for determining who should get stimulus. There are plenty of industries where there are boom and bust years. Paying for stimulus checks with debt, and then telling people, who may have also fallen on unexpected hard times due to covid, that they made too much (and also contributed more in taxes) the previous year to get help... I mean the author does have a case.
- WheelsAtLarge 5y ago
  Yes, but these type of articles have been around even before Covid. Here's one from 2013 76% of Americans are living paycheck-to-paycheck https://money.cnn.com/2013/06/24/pf/emergency-savings/index.html https://money.cnn.com/2013/06/24/pf/emergency-savings/index.... And I'm sure you can find more even earlier than than that. I've found myself at the edge of my finances at some point but can the number be so large all the time in one of the riches country in the world?

ozzythecat 5y ago

> Fewer than 4 in 10 people have enough savings to pay for an unexpected $1,000 expense in cash. > The rest would have to borrow, use a credit card or take out a personal loan. What was the income distribution overall of folks in the survey? Do folks not have $1K specifically because they're living paycheck to paycheck, across income levels, or is it because they lack saving habits?

aaron695 5y ago

legitster 5y ago

This is such a silly question. Even if you are rich, holding onto gobs of cash is bad financial advice! I don't hold onto much more than $1k at a time and I make decent money. This is a terrible way to assess financial health.

ferdowsi 5y ago
Sound financial advice would be having an emergency fund of several months of expenses. You're doing it wrong.
- PragmaticPulp 5y ago
  That's good advice when first starting your savings journey, but once you have a large amount of money invested (>12 months of expenses) you don't really need to keep an "emergency fund" in cash to cover months of expenses. It's 2022. It's trivially easy to convert investments into cash.
  - shric 5y ago
    Unless I need to, I don't like converting investments into cash due to capital gains tax (it's quite high here in Australia while earning at the highest tax bracket), so I keep about 6 months in cash
    - smabie 5y ago
      You would rather miss out on the returns entirely than pay capital gains taxes on a percentage of the profits? How does this make any sense?
      - shric 5y ago
        6 months of cash isn't enough for it to matter to me.
  - idontwantthis 5y ago
    That's not covering unlikely, but devastating events very well. Also makes it harder to stay rational during a financial crash. I'll always keep significant cash accessible at an ATM for safety and sanity.

PragmaticPulp 5y ago

This misleading headline gets repeated over and over again because it gets clicks, but the survey actually asked a different question: Specifically, how would you pay for an emergency expense? They also allowed multiple answers in past years, which further clouded the results. The actual survey questions and results can be found here: https://www.bankrate.com/banking/savings/financial-security-january-2021/ https://www.bankrate.com/banking/savings/financial-security-... > We asked: How would you pay a surprise expense? > Facing a $1,000 expense for an emergency room visit or car repair, you would: > Pay the costs from your savings > Charge to credit card and pay over time > Pay it but cut spending on other expenses > Borrow from family or friends > Take a personal loan The number of people who chose "borrow from family or friends" or "take a personal loan" added up to 20%, so it's not clear how they got to a number suggesting that 61% of Americans simply couldn't pay for it at all. These studies get endlessly repeated in discussions about financial security in the United States, but they're always seriously misleading. Does anyone really believe that a majority of Americans would crumble when faced with a $1K expense?

boring_twenties 5y ago
My answer would be to charge to credit card and pay with my next paycheck. I suspect I'm not the only one. Now, how do we answer this question? I guess I would have to pick the credit card answer, even though I'm not paying it off "over time." And I guess that would count me as one of the people who couldn't afford it?
- aworlph 5y ago
  Either "Pay the costs from your savings" or "Pay it but cut spending on other expenses", because you would have either saved or spent that part of next month's paycheck if your credit card balance wasn't $1000 higher than usual. If you don't carry a balance, the credit card is merely time-shifting the reduced spending/saving.
  - boring_twenties 5y ago
    The "cut spending" option seems reasonable to me, but I guess it would also count me as unable to afford it?

peanut_worm 5y ago

It is going to be frightening to see how many 80 and 90 year olds are still going to be working in a few decades.

oicu812 5y ago

Dave Ramsey's 7 Baby Steps to get control of your money [a]: Baby Step 1 - Save $1,000 for your starter emergency fund. I listen to his podcast all the time and it's still surprising to me that the callers on the show talk about building their savings for the emergency fund. Based on the real-life stories on the show, the 39% statistic presented in this article seems realistic. [a] https://www.ramseysolutions.com/dave-ramsey-7-baby-steps https://www.ramseysolutions.com/dave-ramsey-7-baby-steps