Just 39% of Americans could pay for a $1000 emergency expense | Hacker News Reader

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

cnbc.com

36 pointswalrus0140 comments

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-...

> 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?

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?

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.

The "cut spending" option seems reasonable to me, but I guess it would also count me as unable to afford it?

The reasonable answer for you would be to select I would be pay it from savings. If you don't take everything so literal it's usually easier to navigate these questionnaires especially without context the participants had.

I would’ve gone for savings, definitely. I think it’s the most cost effective way to get things sorted, second best would be to ask friends/family since I’m guessing it would be an interest -free loan.

Are you sure you're not just saying that because you retrospectively know how your answer is going to be interpreted?

Honestly it wouldn't occur to me to answer savings unless I am actually withdrawing from my savings account.

Really? No, I don't know... To me the order is clear:

> Pay it but cut spending on other expenses > Pay the costs from your savings > Borrow from family or friends > Charge to credit card and pay over time > Take a personal loan

If that particular month I got that kind of scratch then I would definitely allocate it to cover the expense, second best and most likely, savings...

Family and friend if I must, luckily I do have a few names on the 'hey, can I borrow a few G's' list...

Credit card and loan are definitely bottom of the list... I finished paying a 7 grand credit debt a few years ago and decided to call it quits with it. Since then I've been trying to save and now (mid-thirties) I can finally feel at ease with some savings... I'm terrible with money btw.

I agree that's probably the least-worst answer, but I strongly suspect most people in this situation would pick the one that includes the words "credit card."

> Does anyone really believe that a majority of Americans would crumble when faced with a $1K expense?

Many people here in the EU believe so; this gets repeated a lot when the US comes up. Americans, when visiting here, often ask if it is true you can have your granny put down in the Netherlands when you want to (no) and people ask Americans if they really die in the streets because they cannot even get 1000$ (forgetting that people on holiday here definitely spent more than 1000$ on leisure). We did a house swap with a young couple from Florida and they, when someone asked, indeed said they would be able to get 1000$ in an emergency, but 5k would be impossible, loan or otherwise. I would be able to come with 20 or so people who would give me 5k if I was in a bind, and I don't know many rich peeps: I am almost 50 and all my friends have had jobs for about 30 years in a western country which means 5k is not that much, especially for an emergency. I live in a village with 'poor farmers' but when someone has issues (usually divorce or death) the community manages to raise over 20k$ every time i have seen it with ease.

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-unde...

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.

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....

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?

These articles get published because they get clicks, not because they're accurate.

The actual survey this article was based on is available here: https://www.bankrate.com/banking/savings/financial-security-...

Scroll down to the question they asked and the results and you'll see that it's nothing like what this headline suggests. If you answered "put it on a credit card and pay it off" or suggested that you would cut other expenses that month, you were counted as being unable to afford it.

The majority of Americans are not on the brink of financial collapse, but headlines suggesting as much will never fall out of fashion.

When interest rates are below inflation, it may make sense for many people to extend themselves as far as they can to acquire assets, nominally spending more than they earn. The current market makes it very tempting to short the USD via low interest loans to buy speculative holdings.

>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.

> 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.

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.

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."

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

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.

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.

I can't imagine that many people are able to maintain 30% growth over and extended timeline.

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.

>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?

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.

>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.

Not sure where you got 60% from. I said 65% of people had the money, and 35% of people did not. Is that accurate? The number comes from my interpretation of this one study. I would put some confidence in the number being between 25-35%. Again, 60% is a made up number - so no, I don't agree with that number.

> 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?

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

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.

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.

Sound financial advice would be having an emergency fund of several months of expenses. You're doing it wrong.

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.

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

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?

6 months of cash isn't enough for it to matter to me.

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.

I would imagine there's a pretty strong correlation between job loss and a crashing stock market. I wonder how the opportunity cost of keeping an e fund in accounts that won't lose principle compares to the downsides of potentially having to sell off stock after a crash.

Of course that's assuming you're able to sell your stock and transfer the funds in a timely fashion. Maybe things have changed in 2022, but I know plenty of people (especially using Robinhood as their brokerage) who had liquidity issues when trying to sell shares in 2021.

They said invested, not stock market. That means bonds, precious metals / commodity ETF, mutual funds / stock market, the whole shebang.

If your emergency funds are 100% stock market instead of diversified investments you're doing it wrong.

If you don't trust electronic systems to stay on-line in a crash then your hedge is probably not USD but other assets, like canned goods / water filter / ammo / hard assets in your personal custody.

Reply on news.ycombinator.com