64% of Americans Can’t Handle a $1,000 Emergency Expense

By Global Macro Monitor

This is a stunning stat and shows how out of touch Washington and Wall Street are with Main Street. Imagine if gas prices spike $2.00 per gallon. CNN writes,

A majority, or 64%, of Americans don’t have enough cash on hand to handle a $1,000 emergency expense, according to a survey by the National Foundation for Credit Counseling, or NFCC, released on Wednesday.

Only 36% said they would tap their rainy day funds for an emergency. The rest of the 2,700 people polled said that they would have to go to other extremes to cover an unexpected expense, such as borrowing money or taking out a cash advance on a credit card.

Back in the 1990’s we used to discuss and joke with our European friends, who have relatively strong safety nets, as to why Americans worked so hard and mutually concluded it was because they knew they were two paychecks from the street. No joke anymore.

  1. That What Is Not says

    I call BS. There are always ways to deal with such events without needing to borrow money or run up a credit card. These folks probably have all kinds of expenses that they could trim. Drop your cable bill. Cut back on your food bill (given that a significant portion of the population is obeses, this could surely be done and it would help). Drop you cell phone (really, people, millions of people used to live without these just fine).

    This is the problem with this country. We never say, how can I downsize my life. We just look for another opportunity to run up our debt. It is no wonder folks are leveraged up to their necks.

  2. David Lazarus says

    Actually the UK has very low average savings as well. There was a figure of £150 average savings only a few years ago, and this figure excluded mortgage debt. Most people operate revolving debt. The safety net really only applies to people when they lose their jobs.

    This is about can people lay their hands on $1000 at short notice. It will take time to cut expenses to the extent that they have $1000 at hand. Also most US citizens live from pay-check to pay-check.

  3. Linda R says

    A true emergency doesn’t wait while one saves $100/month by cutting expenses. Further, simply giving up a cell phone, expensive coffees, or meals out, or dessert, are actions many people have long since done – if they ever had those things. If they do still have a cell phone, it might be their only phone and their only access to Internet. (Money saved on wireline, ISP, and computer). When food expense is not a significant portion of one’s income, one tends not to notice that the least expensive food is the least healthy or to understand that fresh broccoli for the family could take up all the money available for the meal. When the budget is limited, the need for calories is primary. More generally, if you live pay check to pay check, that emergency doesn’t stand alone. Much is already deferred, so it’s not like money saved on food or a cell phone could ever be put into savings.

    Could some people manage their money better? No doubt. How much effort do we put into educating them about money matters? How much effort is put into promoting credit cards, payday loans, etc.? Do we live in a society where delayed gratification is part of the culture? What were we asked to do when our country went to war? Answer: Go shopping!

    As someone who is grateful every day that she grew up in a family where saving and money management was part of the family culture, it would be easy for me to criticize those who have more difficulty with it. However, in recent years, simple household money management can only go so far when it’s up against a culture of consumption and an ever more aggressive expansion of the income/wealth gap.

    1. David Lazarus says

      What would help Americans was the new agency to regulate financial products. It would have lowered their expenses and allowed many to cope a lot better with lower interest rates and lower fees. Blame the GOP for keeping most people in poverty as a result.

  4. Dan Lemnaru says

    I’m not advocating that Americans should live like Eastern Europeans do, or that they could survive on similar budgets, but they could certainly live using smaller housing, smaller more efficient cars, share cars, use public transportation more etc.

    “A true emergency doesn’t wait while one saves $100/month by cutting expenses.”

    True, but that’s no reason for everyone not to save at all. When something happens, you’re $100 better prepared for it. If you’re lucky, you might get to save $10k before anything happens.

    “and an ever more aggressive expansion of the income/wealth gap.”

    IMHO, that’s where the problem lies today. The economies revolve around consumption, but the worker doesn’t earn in line with the growth in productivity. The billionaires of the world can only consume so much – simple physical limits. Besides, many of them are savers, investors and cost reducers at heart, not consumers.

  5. David Lazarus says

    The problem is to make such changes, to move to smaller housing also costs money. Same for more efficient cars. Public transport for most is minimal and restrict. As to be able to save $10k they would need to have excess income over expenditure and as most are living from pay check to pay check they simply cannot save as much as that.

  6. Dan Lemnaru says

    The public transportation problem is largely a side-effect of obsession over owning houses and ample land. You end up with lots of low density towns, where public transportation can’t be efficient.

    Living paycheck to paycheck is as much a result of high costs of living, as it is a choice. Being frugal is no fun, but complaining that you have no dollar to spare is in the vast majority of cases, simply a refusal to accept responsibility. A refusal to admit that something needs to, can, and is up to you to change. When you choose to extend your debts and monthly expenses to the level where there’s little to no reserve, you’re fully aware of what you’re doing.

    Sure, changing to smaller housing will probably cost something in the short run. Trading the car with fuel and other cost reduction goals in mind should not be all that hard if you really want to do it.

    In families where one of the spouses loses his/her job, you’ll find that, while struggling, they often find ways to manage. Proof that there was at least some room to save, if the will was there.

    1. David Lazarus says

      Sure but consider the background. There has been a stagnation of wages in the US for 30 years and inflation while low has been tremendous when you consider property costs. Rents in cities are still high. The problem is this drains disposable incomes before you account for high oil prices. For many they have already exhausted all the options of being frugal. Look at the numbers seeking bankruptcy in the US.

      1. Dan Lemnaru says

        I definitely agree on the income-productivity gap. As I said, that is very much the problem with the economies, pretty much all over the world. Still, there are lots of poorer people on the face of the Earth than most US workers, so the US workers could save if they made a priority out of it and would agree to lower standards of living. It’s very much a mentality problem.

        “Look at the numbers seeking bankruptcy in the US.”

        How many are there because they bought houses they couldn’t afford, or that they could only marginally afford? A small shock and they now owe more than they can pay. These are decisions and risks they chose to assume. No one forced anyone to purchase a house at the top of the boom, get another mortgage etc. Renting was still an option, and rent, AFAIK, didn’t rise in step with housing prices. Besides, renting prices come down faster when the economy rebalances due. A mortgage remains pretty much unchanged because the principal is still there.

        “For many they have already exhausted all the options of being frugal.”

        Do you think most developing country citizens could understand that argument? People can live with a lot less than they can imagine. They choose not to, and then complain that their finances are too stretched. You can’t have your cake and eat it too. :)

        1. David Lazarus says

          Yes the split of GDP between the rich and the masses is a problem that affects nearly every country. This will be an issue in many countries which will only be exacerbated by austerity. It is the poor everywhere being made to suffer the consequences of the bankers and politicians mistakes.

          Do not forget that the US was epicentre of the most incredible level of mortgage fraud which has barely being investigated. The “NINJA” or Liar loans basically allowed anyone to get on the property ladder. This was helped by all the new varieties of mortgages. Just look at eastern Europe with foreign currency mortgages that already lad waste to Iceland, the baltic states and are now affecting Hungary. This boosted the property market for a while but with new entrants the market became a bubble. The reason that people took such risks was that property was climbing faster than their ability to save a deposit and so they had to take a risk to get on the housing ladder or risk being frozen out permanently. Hence 125% loan to value mortgages in the UK. Look at Spain where the property bubble was even more extreme where much of the buying was of foreigners buying second homes in Spain. This pushed up the prices and made entire areas of Spain almost devoid of locals.

          Also the bankruptcies extend to renters. I know of lawyers who rented who had apply for bankruptcy when their normal debts rockets because of banks increasing interest rates on credit cards and loans. It is not all reckless spending. Marital breakdown can also increase costs to the extent that they are unsustainable. Also rents had stabilised before house prices as many ex-owners had to rent. Rents in the UK are going up even as prices are falling as the majority of the population are being squeezed by inflation of all goods and services. This is draining them of funds to maintain the economy. So even if you had your finances in balance before they are struggling now.

          Also the US has a substantial number of its population below the poverty line. Frugality has its limits when you wonder where your next meal comes from. That is the case for millions of Americans already. 40 Million americans already rely on food stamps for food, and even they do not cover everything. They would love to have cake. They might not be the levels of depravity that you might see on a appeal for drought hit Somalia, but compared with the rest of America it is pretty bad.

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