Are Americans really that destitute?

 

You’ve probably heard, from various media sources, that almost half of all Americans couldn’t cover a $400 emergency expense.  The idea is that many of us couldn’t afford to pay for a flat tire or fix our water heaters—but in the real world these expenses crop up all the times and most of us seem to get along fine.

A recent article in Bloomberg traces the $400 claim to a single line in the Federal Reserve Board’s annual “Report on the Economic Well-Being of U.S. Households.  It tells us that 61% of adults would cover a $400 unexpected expense using cash or its equivalent.  Ergo, that means 39% cannot come up with the money they’d need to handle this situation.

However, the Fed report makes clear that “the remaining 4 in 10 adults” would be able to make it work by carrying a credit card balance or borrowing from their friends and family.  It goes on to say that “Twelve percent of adults would be unable to pay the expense by any means.”  That’s 12%, not 39%.  In a footnote, the report cites a 2016 study finding that 76% of households have $400 in liquid assets, even after considering monthly expenses.

Other questions in the survey also suggest that Americans are not as poverty-stricken as that first question indicates.  Respondents were asked whether they are able to pay all of their bills in full.  Only 17% said they cannot pay some bills.  Presumably at least some of those hold credit card balances.  The Fed also asked how a $400 emergency expense would affect respondents’ ability to pay their other bills.  85% reported that they would still be able to pay all their bills.

There is no question that a certain number of Americans are living in desperate financial circumstances.  If that number is 12% or 15% or 17%, it is definitely too high for most of us to be comfortable with.  But the 39% or “almost half” figure that is popularly cited, is often an exaggeration of the problem in order to rile up and attract readers. 

  

  This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as individualized legal or investment advice.