Almost 40% of Americans Would Struggle to Cover a $400 Emergency
bloomberg.com
bloomberg.com
https://twitter.com/p_millerd/status/1118071142311288838
Highlights:
"After some digging I found the 2016 appendix (again, 2017 not to be found). Only 12% of people couldn't actually pay the expense"
"Another survey question not highlighted actually gives some direct clarity on this question. It turns out only about 15% of people would not be able to cover a $400 expense [without impacting their ability to pay other bills]."
Note that "12% couldn't actually pay" is about equal to the 2017 official poverty rate of 12.3%. I don't find it surprising that people counted as "in poverty" would have problems covering a $400 immediate cash expense.
Good eye, /u/gojomo.
I'd say that both count as "struggle", though
1) I have the cash ready to spend right now or in liquid assets.
2) I can get the cash, but from an account/asset I'd rather not withdraw from (IRA, jewelry).
3) I can go into debt to pay it, and it wouldn't make a big difference over the next year.
4) I can go into debt to pay it, but my financial situation would be close to bankruptcy over the next year.
5) I can't access that kind of money by any means.
A good survey should iron out this spectrum of "affording" the expense to make the result robust and easy to interpret.
debunker: actually the data says 12%
data: 12% can't cover $400, 28% would have to borrow the money or sell something to cover $400.
original author: yeah, I added 12 and 28 to get 40 and said "struggle"
Newspapers definitely use narratives to sell papers (or get clicks these days). This is a thing that I don't deny. It has always been a thing.
But it wasn't quite the strong debunking that I expected
That data is garbage.
I personally use CC for all my payments unless it is not accepted.
The data is still sound, whether you think having to borrow or sell something to pay an expense is still not being able to pay that expense or not.
Further, pointing out the distinction between these two groups does not strongly debunk the data. That's nit-picking, at best. This should still be concerning, even if it's improved over the past few years.
Of course, whether cash or put on a credit card to be paid off at month's end, that doesn't really say anything about how painful that unexpected expense is. One can cover an expense and realize they're not going to be able to take a vacation this year. There's a continuum between "I can't pay this" and "Whatever."
But it's hard for me to see cash vs. checking account vs. credit card that will be paid off in a few weeks as materially different.
Actually not debunked at all.
Headline says "would struggle to cover a $400 emergency" and is perfectly accurate.
The guy doing the "debunking" (sic) looked at the table quoted in the study, isolated the percentage that could not pay the $400 at all (as opposed to the larger set that would struggle to pay it), and then "triumphantly" declared that the headline is moot because those are only ~ 12%.
But the headline was never about how many couldn't pay $400 at all at all. It was about how would struggle to pay it.
The funny thing is he himself quotes the full breakdown, that along with the 12% that won't be able to pay at all, includes people who would need to "borrow from a friend" to pay it (another 12%), "sell something" (8%), using a payday loan (2%) and so on.
1) At least a few of the possible responses don't really map to any conclusion. Take for example, "Put it on my credit card and pay it off in full at the next statement". Does this mean someone is struggling to pay the expense? Or just a normal way to pay for things? I mentioned in another comment - I keep a fairly large emergency fund and $400 would be trivial to cover, but I'd still pay for it on a card and then pay it off when it was due, so I'd select this option. I think it makes it hard to infer much from this.
2) The responses are multiple choice, so you can't really say "40% of people would struggle". In fact, the percentages sum to 140%, so I don't know what you really can conclude, other than it probably isn't as high as 40% or as low as 12%?
I think a big part of the problem is the structure of the survey that these stories (and the "debunking" are based on) - I don't think you can fully support either conclusion based on it, for a few reasons: 1) At least a few of the possible responses don't really map to any conclusion. Take for example, "Put it on my credit card and pay it off in full at the next statement". Does this mean someone is struggling to pay the expense? Or just a normal way to pay for things? I mentioned in another comment - I keep a fairly large emergency fund and $400 would be trivial to cover, but I'd still pay for it on a card and then pay it off when it was due, so I'd select this option. I think it makes it hard to infer much from this.*
I don't think that's the case with this answer. It's more, I'll need credit cause I don't have either cash or deposits to pay for it.
Having adequate credit, and being able to pay that off within a month, with zero impact on your ability to pay other bills, doesn't sound like too much of a 'struggle' to me. Sure, people complain, it's inconvenient, some other discretionary expenditures will be clipped, you might pay some extra interest or late fees, boo-hoo. But it's not necessarily a symbol of notable hardship on either historical or international levels. (And if these people didn't have easy credit they're confident they could pay off: they'd have kept more hard cash around, like is common in other countries.)
Just like there's a 'hedonic treadmill', where things that used to bring pleasure wear out from familiarity, there's "complaint inflation", in a generally rich & comfortable place like the USA, where whatever remaining nuisances exist become headline news, and get described in grandiose language previously reserved for deathly serious hardships.
I'm sure something like 40% of Americans "struggle" to get out of bed some mornings. Or "struggle" to choose between a $400 and a $1200 smart phone. Or "can't even" achieve some imprecise euphemestic lifestyle goal like "making ends meet" or "the American Dream". It's mostly hyperbole.
Here, he recognizes that there's double counting but still adds categories in a nonsensical way: https://twitter.com/p_millerd/status/1118071185311330309
The total of all responses is 140%, so there's way more overlap than he seems to account for. Isn't it likely that a lot of that overlap is between the only two answers that mean you have the full amount on hand?
Here, for example: https://twitter.com/p_millerd/status/1118071193393750016
Sure, 83% can still meet their other bills, but that's because, according to the other question he pulls out, half of them expect to borrow money to make it work. The other 15% lines up pretty neatly with the 12% who reported they couldn't beg, borrow or steal $400.
So yes, the newspaper headlines are overstated and imprecise, but the "debunking" is also pretty incoherent.
But I think that misses the point.
Only 41.8% have enough cash on hand. That is, a majority of Americans are living paycheck-to-paycheck. They're not saving money or building wealth - they're surviving.
Maybe this is the norm in other countries. Maybe it's the historical norm. But it doesn't bode well for wage earners.
I routinely pay everything through credit cards that give me cash back and a nice organized ledger or all purchases despite having plenty of cash. A significant portion of people I know do the same thing.
And I have "good" insurance.
*Granted that largely depends on how much I've paid YTD, so it could be more than $400, or less, but hell who knows as the plan changes every year.
To be clear I can foot the bill just fine, but it demonstrates how on the edge and out of control you are when $400 breaks the bank.
> And I have "good" insurance.
Well, not really, because even a crappy HMO gives you better guarantees than that.
You have a “good” insurance plan probably in the sense that providing the illusion of choice while heavily exposing you to cost for “covered” services is widely sold as “better” than a slight reduction in mostly illusory choice with far performance on the risk protection function that is the whole reason to buy insurance.
Example:
1. My plan could cover squat of the first $400 for the year... but cover EVERYTHING after $400 of out of pocket costs for the year. If you've got a family, that's a hell of a plan.
2. My plan could cover squat of the first $10k ... that would suck.
A single $400 bill doesn't tell you much as far as what a good plan in the US is or isn't.... and we haven't even gotten into what the premiums are per month.
Of course this also goes to show how much of a pain health insurance in the US is ...
[0]https://www.federalreserve.gov/publications/files/2017-repor...
(We don't need to bother considering people who don't have jobs and thus don't have insurance; the failure mode for them, as before, is "resign yourself to lifelong financial ruin and dodging debt collectors".)
So the question then is: what percentage of households can cover a $1500 emergency bill, rather than a mere $400 bill? And, at the rate of growth since 2013, how many decades will it take for that number to creep up to 50% (and don't forget to adjust for inflation).
https://www.federalreserve.gov/newsevents/pressreleases/othe...
One the one hand it is infuriating to see them pay more for everything they buy because they are paying interest on everything they buy partly because they buy stuff they don't need or buy it sooner than they need to.
On the other hand there are incredible cultural pressures in america to spend spend spend and get newer/better stuff than you need (cars, houses, phones) and almost no cultural pressure to be prudent and responsible.
Probably doesn't help that there is a whole 'industry' whose only function is to capture 5-35% of the income of the poor and distribute it to the rich.
It often does make sense for many people to take out a loan to buy a car, but car loans tend to be described to people in terms of 'monthly payment' rather than total cost, which makes it easier for people to make bad decisions (e.g., buying that new $30,000 SUV w a 5 year loan instead of the used $15,000 sedan w a 2 year loan).
With the cost of education, healthcare, and housing all rising significantly faster than inflation, it's possibly just harder for many to save up that emergency fund. Indeed, it's particularly difficult to justify having an emergency fund if you're also facing five figure 8% interest student loans.
That difference in perception leads to me having a constantly growing bank balance, while they have developed a habit of saving then splurging, repeatedly. Which isn't really building wealth, but more buffering for large pre-planned expenses.
I have enough money, and have enough fun, so I can relax a bit rather than pushing myself for more income.
You can be employed in a high paying sector like tech after going to an in-state engineering school, and still l end up with $2k tacked on in your first year of employment. So then what is more rational: pay off the loan as fast as possible, or build up an emergency fund with a generous 2% ROI.
Of course we were the minority. Most people live exactly at their means (including whatever they can borrow). I understand, I like more space as well: I like my toys as much as everybody. I just believed my future was better if I didn't get myself into debt now.
Imagine doing that for your whole life.
Sadly for some of us (myself included at many times in my life), we just can't make those decisions as easily as we hoped. Willpower and determination seemed so easy when I was young.
In other words, you can give future you (6.5 years in the future) a raise over 100% of your current income by beginning to save some percentage of it (e.g. 10%). At 6.5 years, the 90% you can spend will be greater than your 100% from 6.5 years prior, and you get to continue to save 10%, further increasing both your income and your nest egg.
I think it would be far better defined as learned helplessness in financial matters instead of being stupid. They can be overall smart people, but past experience has taught them views of money that are not beneficial to financial stability. They might even be able to give a lesson on good financial decision making, but on an emotional level they have trouble applying it to themselves.
A much more jarring example of this is behaviors resulting from food insecurity in children. Children who come from very food insecure situations will hoard food even when they are now in a food secure environment. Often this will include hoarding food that does not keep, and any attempts to change this behavior just result in the hoarding being better hidden. From what I remember the advice of foster/adoptive parents in this situation is to provide food meant for hoarding that the child can stockpile and to let the next few years of food security slowly get the child to adjust, recognizing that some level of food hoarding might occur throughout their lifetime.
Which I think is to the gp's point...
Not only is 40 hours / week of a minimum wage job totally livable, the author of this book would be able to save over 50% of such salary. Is it unusual? Yes. Is it easy? Haaaail no. But impossible? Please.
Here's a hint, pithy books written by those born into wealth about how the poor just don't have discipline aren't generally worth the paper they're printed on.
I understand, and share, your frustration with poor shaming. But please understand nobody here is doing that.
The one avoiding difficult conversations is you.
- Covered (at least partially) by their employer (like most Americans)
- Covered by Medicaid
- Heavily subsidized under the ACA
When 40% of your population is dealing with it, you have an economic problem that needs to be addressed on a policy level.
If 40% of the population was that close to "absulute ruin" there would be rioting in the streets.
If it was possible to address it with policy at a relatively low cost, then I'd be up for it, but something tells me that there is no policy that can make 100% (or even 90%) of people make rational life choices. Which means that the only option left is cleaning the messes caused by irrationality, and that's very expensive.
The personal finance "industry" (racket) preys on the anxious and blames the victim:
https://slate.com/business/2016/05/the-latte-is-a-lie-and-bu...
https://en.wikipedia.org/wiki/Welfare_queen#Gender_and_racia...
It costs a lot of money to be poor in the USA:
“The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.
Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.
But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.
This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness.”
― Terry Pratchett, Men at Arms: The Play
According to the Social Security Administration [1]:
2017 Average net compensation: 48,251.57
2017 Median net compensation: 31,561.49
The FPL (Federal Poverty Level) income numbers for Medicaid and the Children's Health Insurance Program (CHIP) eligibility [2]:
>> $12,140 for individuals, $16,460 for a family of 2, $20,780 for a family of 3, $25,100 for a family of 4, $29,420 for a family of 5, $33,740 for a family of 6, $38,060 for a family of 7, $42,380 for a family of 8
Wages are not keeping up with corporate profits. That can't all be due to automation.
The minimum wage is only one factor linked to price inflation. We can raise wages and still keep inflation down to an ideal range.
Maybe it's that we don't understand what it's like to live on $12K or $32K a year (without healthcare due to lack of Medicaid expansion; due to our collective failure to instill charity as a virtue and getting people back on their feet as a good investment). How could we learn (or remember!) about what it's like to be in this position (without zero-interest bank loans to bail us out)?
> and what proportion is due to terrible financial literacy.
The r/personalfinance wiki is one good resource for personal finance. From [3]:
>> Personal Finance (budgets, interest, growth, inflation, retirement)
Personal Finance https://en.wikipedia.org/wiki/Personal_finance
Khan Academy > College, careers, and more > Personal finance https://www.khanacademy.org/college-careers-more/personal-fi...
"CS 007: Personal Finance For Engineers" https://cs007.blog
https://reddit.com/r/personalfinance/wiki
... How can we make personal finance a required middle and high school curriculum component? [4]
"What are some ways that you can save money in order to meet or exceed inflation?"
Dave Ramsey's 7 Baby Steps to financial freedom [5] seem like good advice? Is the debt snowball method ideal for minimizing interest payments?
[1] https://www.ssa.gov/OACT/COLA/central.html
[2] https://www.healthcare.gov/glossary/federal-poverty-level-fp...
[3] "Ask HN: How can you save money while living on poverty level?" https://news.ycombinator.com/item?id=18894582
[4] "Consumer science (a.k.a. home economics) as a college major" https://news.ycombinator.com/item?id=17894632
The longer I run this website, the less sympathic I've become.
I see so much waste, I see so many excuses.
I think this paycheck to paycheck lifestyle is chosen by the person (or their biology). There are plenty of opportunities to save money or make more, but people choose not to.
My personal anectdatum:
I was not smart with my money in my younger years. I spent my money freely on whatever I wanted at that moment, and then was always wondering why I was so broke all the time. Savings? Why would I do that when that means I can't have money right now to get the thing I want right now? It took the clue-by-four that was the 2008-2009 recession to get me to realize that living beyond my means with no savings and a growing pile of debt was in fact a Bad Idea. During that time, and in the first few years following as I educated myself about finance and slowly cleaned up the mess I made, I also would have had a hard time covering a $400 emergency. But, that was my own damn fault now, wasn't it?
In the time since, as my financial situation has improved, both because of the economy picking back up and my financial education helping me to be smarter with my money, I've been increasing my savings, reducing my debt, and getting less stupid with my purchases. And doing this, I am now able to cover a $400 emergency without stress. I did exactly that just last week.
Yes, having a higher income now than I did then has certainly helped with that. But as I've reviewed my spending habits from my $20k/yr days, I've become a little embarrassed by them. A modicum of savings discipline would have let me ride out the 2008-2009 crisis more smoothly, and I'd be in even better shape today.
This "can't cover a $400 expense" makes for a nice narrative, and we can all insert our perspectives about the world into this narrative, and walk away feeling good about it.
Quotes from the above twitter thread:
> I was curious about this because it seemed low. After some digging I found the 2016 appendix (again, 2017 not to be found). Only 12% of people couldn't actually pay the expense and a smaller amount would have to borrow money (keep in mind this could be double counted)
Another survey question not highlighted actually gives some direct clarity on this question. It turns out only about 15% of people would not be able to cover a $400 expense.
update: clarify uses of "this" and "it".
Response #1 and #3 equal ~80%. I'd count those as being able to cover it.
Many people use credit cards and pay it off in full on time (including me).
I expect that many of the people who can best afford an unexpected $400 expense would just put it on their credit card which they pay off every month. After all, might as well get the airline miles at least. Even if they could just write a check.
So the 40% is really misleading. It's more like 80%.
Although I am not sure why you would pay cash for anything if you could use a card (for the same price) instead and get cash back or points.
That may be your personal opinion but that contrasts with both the facts and pushes a narrative that doesn't fit reality. For example, I routinely charge unexpected expenses on a credit card although I am more than capable of easily covering them with my savings. I'm sure thay the sheer convenience of charging expenses on a CC drives the decisions of regular CC users, specially as some CC plans charge 0% interests under some conditions.
In your example, where you are putting something on the CC while already having the cash to cover it, that would count as my category 1, and you don't have to resolve the (irrelevant) question of whether using a credit card "is [inherently] debt".
I keep an emergency fund that is in the tens of thousands of dollars, yet I would cover a $400 emergency in this way - put it on a card and pay it off when due, pulling the cash out of my emergency fund to make the payment. The way the responses are worded makes it hard to get too much meaning out of it.
I live in the Bay Area, and my family of 4 lives fairly frugally by choice. Even so, we spent more than $55k last year and squeezing even our modest lifestyle into that budget wouldn't have been easy.
[1]: https://statisticalatlas.com/metro-area/California/San-Franc...
[2]: I put a household income of $65k with a family of 4 (married filing joint) into the tax estimator at https://smartasset.com/taxes/income-taxes#WF5trlFESC
Out of curiosity, how much of that $64k is housing?
Somehow, our HR provider company fucked up, and signed me up for the shittier of the two healthcare plans my employer provides, despite me signing up for the better version. All the paperwork shows that we had the good plan last year, but Aetna says we were on the shitty plan, with no out-of-pocket limit. To that end, our doctor's office is now billing us for $20k for a procedure my wife had to undergo.
We're lucky; we have $20k in savings. We can cover this without the bill going to collections and dinging our credit, while we deal with the god-awful chain of HR->provider->insurer, until we get paid back. I wonder how many of my coworkers couldn't.
I guess this is a question for a lawyer, and not a stranger on the internet.
Also, HR/benefits mistakes happen, and that kind of arrangement with an outsourced company can lead to both individuals and organizations trying to cover their butts when a mistake happens, to a ridiculous degree. (I had paperwork showing I'd paid for and gotten insurance, but the actual insurance company said I didn't have coverage. Fortunately, I didn't get sick or injured, and found out on a routine health appointment. Had I found out the hard way, I could've been stuck with devastating bills and a "pre-existing condition" that could prevent getting insurance coverage in the future (given that ACA was/is under attack). There was such a Kafkaesque and underhanded butt-covering by everyone, I never did even get reimbursed for the insurance I paid for but didn't receive. I had better things to do than to sue.)
If the headline is true, it really underscores the need for basic financial education. If people can't help themselves in this economy, there is little hope for them without some big change. (To the struggling people. Not to the economy.)
Actually it isn't that bad, a fair number of people don't plan to retire while they can work. A job provides a social experience and meaning in life. If you retire you need to replace that (if you don't you will die quickly - this is known medically), if the job isn't that bad why not keep working? For such people retirement means a nursing home, and if they don't have any money the government will cover that. It isn't for me, I have my own projects I want to do, but maybe it is for you: so long as it is a real decision I don't have a problem with it.
"The findings show many signs of growth and improvement along with remaining pockets of distress and fragility. They also reveal new insights into how households approach their financial lives and decisions.
In many ways, the latest findings underscore the overall economic recovery and expansion over the five years of the survey."
I wonder how many of these 40% have a high end smartphone and a big LCD TV in their living room.
Basically, people don't or can't save (much). So any unexpected expenses need to be covered by income.
Let that soak in for those in the US (and on HN) who insist that the economy is great, unemployment is low (and measured properly), the middle class has no problem, etc...
Everyone in the country could be making $100k a year, if their savings rate is 0% they'll still struggle with a surprise $400. IMO it's a problem with spending frivolously...
Having to carry a credit card balance isn’t much of a struggle. This article needs to do more work to make a better headline so it’s not actually “40% of Americans would be inconvenienced...”
Let's say you put $400 on a CC that has 18% interest rate. By paying only the minimum payment each month you end up paying a total of $598 after 4 years and 11 months. This means that for the next 4 years, a credit card is no longer a safe escape for you.
A better example would be an emergency Root Canal at $1,600. This would take you 12 years and 7 months to pay off.
Wow, that's a hell of interest rate. In Poland there's regulatory law that caps interest rates for credit cards (and all types of consumer credits, really) at 11%, or 4x base interest rate set by Polish central bank. Applying the same logic to US would give you what, 9% interest rate? But I guess Americans would see that as messing with free markets :)
Right now it includes the scenario you describe as well as “charged it this month, waited to pay it off next month.” How many Americans do either is useful for knowing the extent of impact.