Fed survey: 40% of adults cannot cover a $400 emergency expense

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Locked
User avatar
danielc
Posts: 377
Joined: Sun Dec 10, 2017 4:48 am

Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by danielc » Mon Jul 02, 2018 7:25 pm

I wasn't sure whether this belongs here ("News") or under personal finance.

Fed survey shows 40 percent of adults still can't cover a $400 emergency expense

I was really surprised by this. You usually hear about how you are supposed to have 3-6 months of expenses saved in an emergency fund. I have been feeling a bit financially incompetent because I don't have that much saved (I'm currently saving). But there have been very few times in my life in which I wouldn't have handled a $400 expense.

User avatar
LadyGeek
Site Admin
Posts: 46837
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by LadyGeek » Mon Jul 02, 2018 7:55 pm

This thread is now in the Personal Finance (Not Investing) forum (financial planning).

To keep this actionable, how does this apply to your own situation?

See the wiki: Emergency fund

Also see: Financial planning (Implement the plan) and note the steps which should be completed in the following order:
The wiki wrote: Prepare to invest

1. Track your expenses and stay within your budget. Investing starts with a sound financial lifestyle. The first step to decide if you are able to invest. Do you have enough left over, after living expenses for investing? Have you updated needed insurance coverage? In order to invest, budget a certain portion of your income for investing.
2. Pay off credit card debt and loans. If you discover that you have no funds available for investing, remember that investing is what you do after you have paid off credit card debts and other high interest loans. Paying off a 20% interest rate credit card debt will free up your money far faster than purchasing a stock fund. With very low interest rate loans, it is often better to make minimum loan payments while continuing to invest.
3. Complete saving for the emergency fund.Once you have debt under control, create an emergency fund. A minimum of six months of living expenses (preferably more) is recommended, especially for non-retired individuals. Don't skip this step! An established emergency fund can provide an individual with needed funds whenever an unforeseen event occurs. Examples of unfortunate events include loss of employment, temporary health impairments, large ticket repair items, and any other unforeseen financial contingency. An emergency fund allows one to meet such expense obligations with liquid funds, so that one does not need to tap investments held for long term goals. Once this in place, you are ready to invest.

Implement the investment plan
...
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

KlangFool
Posts: 9564
Joined: Sat Oct 11, 2008 12:35 pm

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by KlangFool » Mon Jul 02, 2018 8:27 pm

https://www.theatlantic.com/magazine/ar ... me/476415/

OP,

If you are interested, the above is a good example of how someone ended up that way. It is never about income.

KlangFool

User avatar
tfb
Posts: 7889
Joined: Mon Feb 19, 2007 5:46 pm
Contact:

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by tfb » Mon Jul 02, 2018 9:10 pm

danielc wrote:
Mon Jul 02, 2018 7:25 pm
I wasn't sure whether this belongs here ("News") or under personal finance.

Fed survey shows 40 percent of adults still can't cover a $400 emergency expense

I was really surprised by this. You usually hear about how you are supposed to have 3-6 months of expenses saved in an emergency fund. I have been feeling a bit financially incompetent because I don't have that much saved (I'm currently saving). But there have been very few times in my life in which I wouldn't have handled a $400 expense.
We should make a habit of going to the source as opposed to reading a media interpretation. The actual question asked in the survey and the choices were:
EF3. Suppose that you have an emergency expense that costs $400. Based on your current financial situation, how would you pay for this expense? If you would use more than one method to cover this expense, please select all that apply.

a. Put it on my credit card and pay it off in full at the next statement
b. Put it on my credit card and pay it off over time
c. With the money currently in my checking/savings account or with cash
d. Using money from a bank loan or line of credit
e. By borrowing from a friend or family member
f. Using a payday loan, deposit advance, or overdraft
g. By selling something
h. I wouldn't be able to pay for the expense right now
i. Other (please specify): [text box]
Source: https://www.federalreserve.gov/publicat ... nnaire.htm

If someone didn't choose answers (a) or (c), they are grouped in the 40% who "can't cover a $400 emergency expense" without borrowing or selling something. The question asks "how would you pay." It's possible many of the 40% can pay but they choose to borrow anyway because they are reserving their savings for larger emergencies.
Harry Sit, taking a break from the forums.

User avatar
danielc
Posts: 377
Joined: Sun Dec 10, 2017 4:48 am

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by danielc » Mon Jul 02, 2018 9:15 pm

LadyGeek wrote:
Mon Jul 02, 2018 7:55 pm
This thread is now in the Personal Finance (Not Investing) forum (financial planning).

To keep this actionable, how does this apply to your own situation?
Here is a video that motivated me to post. It shows an individual with a successful career and living in an affluent neighbourhood who seems to have often belonged to the group of people who could not afford a $400 emergency. With that context in mind, other than the general advice I already noted (3-6 month emergency fund), I was pondering about what lessons one can draw from this and how one can avoid being in this situation.

EDIT: For example, KlangFool found the link to the original story that inspired the video, and tfb found an important caveat in the story that I was not aware of.

User avatar
danielc
Posts: 377
Joined: Sun Dec 10, 2017 4:48 am

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by danielc » Mon Jul 02, 2018 9:27 pm

tfb wrote:
Mon Jul 02, 2018 9:10 pm
EF3. Suppose that you have an emergency expense that costs $400. Based on your current financial situation, how would you pay for this expense? If you would use more than one method to cover this expense, please select all that apply.

a. Put it on my credit card and pay it off in full at the next statement
b. Put it on my credit card and pay it off over time
c. With the money currently in my checking/savings account or with cash
d. Using money from a bank loan or line of credit
e. By borrowing from a friend or family member
f. Using a payday loan, deposit advance, or overdraft
g. By selling something
h. I wouldn't be able to pay for the expense right now
i. Other (please specify): [text box]
Source: https://www.federalreserve.gov/publicat ... nnaire.htm

If someone didn't choose answers (a) or (c), they are grouped in the 40% who "can't cover a $400 emergency expense" without borrowing or selling something. The question asks "how would you pay." It's possible many of the 40% can pay but they choose to borrow anyway because they are reserving their savings for larger emergencies.
Thanks. Yes, I see that the article was deceptive. The phrasing on the Fed website is a lot more nuanced. Looking more closely at the results, if we remove (b), we get that the people who chose (d) - (i) is only 23% of the respondents. So the article definitely exaggerated the scale of the problem.

KlangFool
Posts: 9564
Joined: Sat Oct 11, 2008 12:35 pm

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by KlangFool » Mon Jul 02, 2018 10:25 pm

danielc wrote:
Mon Jul 02, 2018 9:15 pm
LadyGeek wrote:
Mon Jul 02, 2018 7:55 pm
This thread is now in the Personal Finance (Not Investing) forum (financial planning).

To keep this actionable, how does this apply to your own situation?
Here is a video that motivated me to post. It shows an individual with a successful career and living in an affluent neighbourhood who seems to have often belonged to the group of people who could not afford a $400 emergency. With that context in mind, other than the general advice I already noted (3-6 month emergency fund), I was pondering about what lessons one can draw from this and how one can avoid being in this situation.

EDIT: For example, KlangFool found the link to the original story that inspired the video, and tfb found an important caveat in the story that I was not aware of.
danielc,

In my neighborhood of median annual household income of 150K and median house price of 500K to 600K, the answer is the house. Do not be "House Poor".

KlangFool

User avatar
danielc
Posts: 377
Joined: Sun Dec 10, 2017 4:48 am

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by danielc » Mon Jul 02, 2018 10:34 pm

KlangFool wrote:
Mon Jul 02, 2018 10:25 pm
danielc,

In my neighborhood of median annual household income of 150K and median house price of 500K to 600K, the answer is the house. Do not be "House Poor".

KlangFool
"House Poor"... I hadn't heard that term before. Investopedia defines it as

"House poor is a situation that describes a person who spends a large proportion of his or her total income on home ownership, including mortgage payments, property taxes, maintenance and utilities. House poor individuals are short of cash for discretionary items and tend to have trouble meeting other financial obligations like vehicle payments."

Not being house poor seems like excellent advice. Thanks. Right now my housing and transporation costs are a small fraction of my income. I will aim to keep it that way.

DC3509
Posts: 236
Joined: Wed Jul 12, 2017 7:25 am

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by DC3509 » Mon Jul 02, 2018 10:50 pm

We can quibble about the multiple choice part of this and whether the story accurately captures the data, but I actually think the headline is a lot closer to the truth than most people who post here would realize. There are a lot of people out there who cannot cover a $400 emergency -- it can be the result of low income, very bad financial management, living above your means, disability, victims of scams and other money mistakes, or some combination thereof. But the number of people who fall into this boat is much higher than the usual post here of "can I retire on X million?" Perhaps the actionable part is to keep in mind how many people out there have financial problems. Stay humble (for real, not humble brags). You never know when through some bad luck you could be on the short end of the stick too.

User avatar
Phineas J. Whoopee
Posts: 7236
Joined: Sun Dec 18, 2011 6:18 pm

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by Phineas J. Whoopee » Mon Jul 02, 2018 11:48 pm

KlangFool wrote:
Mon Jul 02, 2018 8:27 pm
...
If you are interested, the above is a good example of how someone ended up that way. It is never about income.
...
It, KlangFool, is frequently about income. Not everybody earns enough, including your stellar example and that of each and every person from your original country of saving 50% through good years and bad, to keep themselves and their families housed and fed at even a basic level.

It is expensive to be poor.

Kindly refrain from blaming the victims.

PJW

Image
Last edited by Phineas J. Whoopee on Tue Jul 03, 2018 12:44 am, edited 1 time in total.

CurlyDave
Posts: 653
Joined: Thu Jul 28, 2016 11:37 am

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by CurlyDave » Tue Jul 03, 2018 12:39 am

One of the more amazing things to me is that "I would withdraw it from my brokerage account" is not even a listed option.

Of course for most of us $400 is lost in the noise of monthly expenses, but if I needed thousands, the brokerage account is where i keep it.

KlangFool
Posts: 9564
Joined: Sat Oct 11, 2008 12:35 pm

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by KlangFool » Tue Jul 03, 2018 5:56 am

Phineas J. Whoopee wrote:
Mon Jul 02, 2018 11:48 pm
KlangFool wrote:
Mon Jul 02, 2018 8:27 pm
...
If you are interested, the above is a good example of how someone ended up that way. It is never about income.
...
It, KlangFool, is frequently about income. Not everybody earns enough, including your stellar example and that of each and every person from your original country of saving 50% through good years and bad, to keep themselves and their families housed and fed at even a basic level.

PJW
PJW,

Are you claiming that in my neighborhood of annual median household income of 150K and median house price of 500K to 600K, my neighbors do not earn enough to shelter and feed themselves? By the way, the median house is a single family home of 3,000 or more square feet. Are you claiming that my neighbors are poor from the income standpoint?

It is the house that destroys my neighbors financially.

KlangFool

KlangFool
Posts: 9564
Joined: Sat Oct 11, 2008 12:35 pm

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by KlangFool » Tue Jul 03, 2018 6:27 am

https://www.quora.com/Why-do-many-peopl ... -ever-made

Folks,

An interesting thread at Quora on this subject.

KlangFool

SQRT
Posts: 809
Joined: Sat Feb 05, 2011 9:44 am

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by SQRT » Tue Jul 03, 2018 7:36 am

Why are Bogleheads so fascinated by stories like this? Get over it. Just be happy and thankful we are so smart/lucky/disciplined.

sabtastic
Posts: 32
Joined: Tue Dec 03, 2013 1:00 am

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by sabtastic » Tue Jul 03, 2018 7:45 am

KlangFool wrote:
Tue Jul 03, 2018 5:56 am

PJW,

Are you claiming that in my neighborhood of annual median household income of 150K and median house price of 500K to 600K, my neighbors do not earn enough to shelter and feed themselves? By the way, the median house is a single family home of 3,000 or more square feet. Are you claiming that my neighbors are poor from the income standpoint?

It is the house that destroys my neighbors financially.

KlangFool
KlangFool is 100% correct here.

It is not about income, it is ALWAYS about SPENDING. That sob story is sad, but almost all of those things that "just happened" were lack of planning and poor decisions. Everyone here would say that financing a $50,000 car is a bad idea if you make 25k a year. Why doesn't anyone say it is a bad idea to purchase an education if the total cost is 3-5x your household income? Same goes for purchasing a house that is 8-10x your income. Yes, these "assets" appreciate over time and perhaps may even eclipse what you spent on them eventually, but if you can't afford them you are going to fail. I have an acquaintance that makes seven figures a year who has more debt than he can afford. The janitor at my employer is paying his son's way through nursing school out of pocket because he lived below his means and put money aside for decades.

Am I alone in feeling absolutely no sympathy for someone who liquidates their 401k to pay for their daughter's wedding? Using your inheritance to pay for Stanford?

User avatar
1210sda
Posts: 1403
Joined: Wed Feb 28, 2007 8:31 am

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by 1210sda » Tue Jul 03, 2018 7:56 am

SQRT wrote:
Tue Jul 03, 2018 7:36 am
Why are Bogleheads so fascinated by stories like this? Get over it. Just be happy and thankful we are so smart/lucky/disciplined.
My interest in stories like this is because it allows me to show my kids what can happen in life.

1210

KlangFool
Posts: 9564
Joined: Sat Oct 11, 2008 12:35 pm

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by KlangFool » Tue Jul 03, 2018 8:00 am

sabtastic wrote:
Tue Jul 03, 2018 7:45 am
KlangFool wrote:
Tue Jul 03, 2018 5:56 am

PJW,

Are you claiming that in my neighborhood of annual median household income of 150K and median house price of 500K to 600K, my neighbors do not earn enough to shelter and feed themselves? By the way, the median house is a single family home of 3,000 or more square feet. Are you claiming that my neighbors are poor from the income standpoint?

It is the house that destroys my neighbors financially.

KlangFool
KlangFool is 100% correct here.

It is not about income, it is ALWAYS about SPENDING. That sob story is sad, but almost all of those things that "just happened" were lack of planning and poor decisions. Everyone here would say that financing a $50,000 car is a bad idea if you make 25k a year. Why doesn't anyone say it is a bad idea to purchase an education if the total cost is 3-5x your household income? Same goes for purchasing a house that is 8-10x your income. Yes, these "assets" appreciate over time and perhaps may even eclipse what you spent on them eventually, but if you can't afford them you are going to fail. I have an acquaintance that makes seven figures a year who has more debt than he can afford. The janitor at my employer is paying his son's way through nursing school out of pocket because he lived below his means and put money aside for decades.

Am I alone in feeling absolutely no sympathy for someone who liquidates their 401k to pay for their daughter's wedding? Using your inheritance to pay for Stanford?
sabtastic,

They believe they can afford it because their pay will only go up and they will be fully-employed until retirement age. Then, the next recession proves them wrong.

Only when the tide goes out do you discover who's been swimming naked.
- Warren Buffett

KlangFool

SQRT
Posts: 809
Joined: Sat Feb 05, 2011 9:44 am

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by SQRT » Tue Jul 03, 2018 8:42 am

1210sda wrote:
Tue Jul 03, 2018 7:56 am
SQRT wrote:
Tue Jul 03, 2018 7:36 am
Why are Bogleheads so fascinated by stories like this? Get over it. Just be happy and thankful we are so smart/lucky/disciplined.
My interest in stories like this is because it allows me to show my kids what can happen in life.

1210
Wouldn’t have thought you would need these kind of stories to do that, but I guess it really does “bring it to life”. I suspect the motivation here is more a sense of smugness though.

NotWhoYouThink
Posts: 1964
Joined: Fri Dec 26, 2014 4:19 pm

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by NotWhoYouThink » Tue Jul 03, 2018 8:48 am

It isn't "always" or "never" income.

But the people who have income but can't cover a $400 expense need Dave Ramsey. He is perfect for them, and they for him.

Those people don't post on this board.

Glockenspiel
Posts: 486
Joined: Thu Feb 08, 2018 1:20 pm

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by Glockenspiel » Tue Jul 03, 2018 8:53 am

I thought this statistic was well-known across America. I’ve seen it or similar several times in the last few years. Its amazing to me that so many of us live in our little privileged bubbles that we don’t understand the magnitude of wealth disparity in this country.

KlangFool
Posts: 9564
Joined: Sat Oct 11, 2008 12:35 pm

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by KlangFool » Tue Jul 03, 2018 8:57 am

SQRT wrote:
Tue Jul 03, 2018 8:42 am
1210sda wrote:
Tue Jul 03, 2018 7:56 am
SQRT wrote:
Tue Jul 03, 2018 7:36 am
Why are Bogleheads so fascinated by stories like this? Get over it. Just be happy and thankful we are so smart/lucky/disciplined.
My interest in stories like this is because it allows me to show my kids what can happen in life.

1210
Wouldn’t have thought you would need these kind of stories to do that, but I guess it really does “bring it to life”. I suspect the motivation here is more a sense of smugness though.
SQRT,

What makes you think that?

It is common and normal for someone that graduated with an engineering degree and newly employed with solid engineering pay to believe that:

A) Their pay can only go up.

B) They will be fully-employed until retirement age.

With those 2 assumptions, it is perfectly logical for them to assume that they could afford to overspend on the house. I could be one of those folks too.

It is purely by historical accident that when I graduated, it was Houston Oil Bust/ Texas Saving & Loan Crisis. I was taught by countless examples of folks financially destroyed by the house. After that, right before Asian Currency Crisis, folks were making 300% to 500% gain on their houses. I did not take part in that madness too.

We are conditioned by our experiences. It is hopeless to tell folks that they are "House Poor" and they are overexposed when they have never experienced one of those recessions.

There is very little to separate us with them. The difference is only a house plus some lucks.

I was unemployed for more than 1 year a few times. I count myself lucky. The unemployment only lasted about 1 year, If it lasted much longer (2+ years) when I started, I may not financially survive either even without a house.

KlangFool

montanagirl
Posts: 953
Joined: Thu Nov 19, 2009 4:55 pm
Location: Montana

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by montanagirl » Tue Jul 03, 2018 9:18 am

KlangFool wrote:
Mon Jul 02, 2018 8:27 pm
https://www.theatlantic.com/magazine/ar ... me/476415/

OP,

If you are interested, the above is a good example of how someone ended up that way. It is never about income.

KlangFool
There is so much stupid in that article, written by self proclaimed imbecile. If that's typical I cannot sympathize nor do I believe anyone on this forum has screwed up that badly.

KlangFool
Posts: 9564
Joined: Sat Oct 11, 2008 12:35 pm

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by KlangFool » Tue Jul 03, 2018 9:35 am

montanagirl wrote:
Tue Jul 03, 2018 9:18 am
KlangFool wrote:
Mon Jul 02, 2018 8:27 pm
https://www.theatlantic.com/magazine/ar ... me/476415/

OP,

If you are interested, the above is a good example of how someone ended up that way. It is never about income.

KlangFool
There is so much stupid in that article, written by self proclaimed imbecile. If that's typical I cannot sympathize nor do I believe anyone on this forum has screwed up that badly.
montanagirl,

You may be interested in this article too.

https://investingtothrive.com/lessons-s ... dle-class/

KlangFool

caffeperfavore
Posts: 71
Joined: Thu Aug 06, 2015 11:45 am

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by caffeperfavore » Tue Jul 03, 2018 9:45 am

Actually, this is 40% of adults that would bother responding to a survey cannot cover a $400 emergency.

From this subset of the actual population, how many are young adults? A lot of 19 year olds couldn't and they don't care. How many are students? I probably fell into this category in college and grad school. How many are just starting out in their careers? A lot of other people can experience temporary hardships before getting back on their feet.

My point? I don't think this is as dire as it makes it sound.

LiterallyIronic
Posts: 735
Joined: Sat Dec 05, 2015 10:36 am

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by LiterallyIronic » Tue Jul 03, 2018 9:46 am

The problem is not living below your means. Or even at your means.

This video sums it up nicely: https://www.youtube.com/watch?v=Qb8hTzUoI54

KlangFool
Posts: 9564
Joined: Sat Oct 11, 2008 12:35 pm

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by KlangFool » Tue Jul 03, 2018 10:07 am

caffeperfavore wrote:
Tue Jul 03, 2018 9:45 am
Actually, this is 40% of adults that would bother responding to a survey cannot cover a $400 emergency.

From this subset of the actual population, how many are young adults? A lot of 19 year olds couldn't and they don't care. How many are students? I probably fell into this category in college and grad school. How many are just starting out in their careers? A lot of other people can experience temporary hardships before getting back on their feet.

My point? I don't think this is as dire as it makes it sound.
caffeperfavore,

<<cannot cover a $400 emergency.>>

I cannot speak about the survey. I can only talk about my peers and my neighbors. This is quite prevalent in my affluent neighborhood (annual median household income of 150K). My daughter's high school club has an annual fee of $600. It was a one-time payment. Many parents could not afford to pay this. Hence, the club had to offer an installment option of 3 payments of $200 each.

KlangFool

SouthernCPA
Posts: 676
Joined: Wed Sep 23, 2015 10:20 am

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by SouthernCPA » Tue Jul 03, 2018 10:24 am

SQRT wrote:
Tue Jul 03, 2018 8:42 am
1210sda wrote:
Tue Jul 03, 2018 7:56 am
SQRT wrote:
Tue Jul 03, 2018 7:36 am
Why are Bogleheads so fascinated by stories like this? Get over it. Just be happy and thankful we are so smart/lucky/disciplined.
My interest in stories like this is because it allows me to show my kids what can happen in life.

1210
Wouldn’t have thought you would need these kind of stories to do that, but I guess it really does “bring it to life”. I suspect the motivation here is more a sense of smugness though.
I agree, SQRT

CarpeDiem22
Posts: 72
Joined: Tue May 22, 2018 11:20 pm

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by CarpeDiem22 » Tue Jul 03, 2018 10:29 am

This is shocking for one of the wealthiest countries in the world. I see this as one of the dark sides of capitalism. No school teaches personal finance, because modern education is meant only to generate workers for the capitalists. Self-learning is the only way out of it.

GAAP
Posts: 549
Joined: Fri Apr 08, 2016 12:41 pm

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by GAAP » Tue Jul 03, 2018 10:30 am

tfb wrote:
Mon Jul 02, 2018 9:10 pm
EF3. Suppose that you have an emergency expense that costs $400. Based on your current financial situation, how would you pay for this expense? If you would use more than one method to cover this expense, please select all that apply.

a. Put it on my credit card and pay it off in full at the next statement
b. Put it on my credit card and pay it off over time
c. With the money currently in my checking/savings account or with cash
d. Using money from a bank loan or line of credit
e. By borrowing from a friend or family member
f. Using a payday loan, deposit advance, or overdraft
g. By selling something
h. I wouldn't be able to pay for the expense right now
i. Other (please specify): [text box]
Source: https://www.federalreserve.gov/publicat ... nnaire.htm

If someone didn't choose answers (a) or (c), they are grouped in the 40% who "can't cover a $400 emergency expense" without borrowing or selling something. The question asks "how would you pay." It's possible many of the 40% can pay but they choose to borrow anyway because they are reserving their savings for larger emergencies.
Choices b and f, at a minimum, are extremely expensive ways to continue saving for larger emergencies. Choice e is expensive also, just not financially.

There's not much point in having "emergency savings" that don't actually cover emergencies... However, some "emergencies" for a lot of people are really just the consequences of bad choices.

User avatar
vitaflo
Posts: 950
Joined: Sat Sep 03, 2011 3:02 pm

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by vitaflo » Tue Jul 03, 2018 10:52 am

KlangFool wrote:
Tue Jul 03, 2018 10:07 am
I cannot speak about the survey. I can only talk about my peers and my neighbors.
If you can only speak to neighbors and peers then you can't in the same breath also say it's never about income. There's a base cost to simply existing and many people have problems just meeting that requirement through their income.

Where I grew up the median income is ~$30k. $400 to many of these people (including my parents) would feel like winning the lottery. Heck, my best friend doesn't even have $40 to cover an emergency, let alone $400 and shares an apartment with 3 other people to keep his housing costs down.

There is no doubt a lot of people with the means overspend themselves into trouble. But there are many many more examples of people who don't even have the option to be financially irresponsible, they just don't make enough money to.

KlangFool
Posts: 9564
Joined: Sat Oct 11, 2008 12:35 pm

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by KlangFool » Tue Jul 03, 2018 11:06 am

vitaflo wrote:
Tue Jul 03, 2018 10:52 am
KlangFool wrote:
Tue Jul 03, 2018 10:07 am
I cannot speak about the survey. I can only talk about my peers and my neighbors.
If you can only speak to neighbors and peers then you can't in the same breath also say it's never about income.
vitaflo,

https://www.theatlantic.com/magazine/ar ... me/476415/

It is never about income as per my peers and neighbors. And, as per the URL that I posted, it was not about income either.

The US median income is about 60K. My neighborhood's median income is 150K. It is never about income in my neighborhood.

KlangFool

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by dbr » Tue Jul 03, 2018 11:20 am

I'm sorry. I know people who can't cover a $400 emergency expense. I also know why, and believe me, it is not because they have irresponsibly failed to be virtuous. Bad things happen to good people. Bad things also happen to bad people. I would refrain from generalization and stereotypes.

GAAP
Posts: 549
Joined: Fri Apr 08, 2016 12:41 pm

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by GAAP » Tue Jul 03, 2018 11:34 am

dbr wrote:
Tue Jul 03, 2018 11:20 am
I'm sorry. I know people who can't cover a $400 emergency expense. I also know why, and believe me, it is not because they have irresponsibly failed to be virtuous. Bad things happen to good people. Bad things also happen to bad people. I would refrain from generalization and stereotypes.
The recent UN report includes this line:
10. I have been struck by the extent to which caricatured narratives about the purported innate differences between rich and poor have been sold to the electorate by some politicians and media, and have been allowed to define the debate.
We should endeavor to stick to the facts and not pigeonhole classes of people.

It is surprisingly easy for one bad decision to cause a cascade of other problems. It is also true that some people don't effectively evaluate the true impact of their decisions. Humans are notoriously bad at delaying near-term gratification for long-term gratification.

User avatar
jharkin
Posts: 1697
Joined: Mon Mar 28, 2016 7:14 am
Location: Boston suburbs

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by jharkin » Tue Jul 03, 2018 11:40 am

sabtastic wrote:
Tue Jul 03, 2018 7:45 am

KlangFool is 100% correct here.

It is not about income, it is ALWAYS about SPENDING. That sob story is sad, but almost all of those things that "just happened" were lack of planning and poor decisions. Everyone here would say that financing a $50,000 car is a bad idea if you make 25k a year. Why doesn't anyone say it is a bad idea to purchase an education if the total cost is 3-5x your household income? Same goes for purchasing a house that is 8-10x your income. Yes, these "assets" appreciate over time and perhaps may even eclipse what you spent on them eventually, but if you can't afford them you are going to fail. I have an acquaintance that makes seven figures a year who has more debt than he can afford. The janitor at my employer is paying his son's way through nursing school out of pocket because he lived below his means and put money aside for decades.

Am I alone in feeling absolutely no sympathy for someone who liquidates their 401k to pay for their daughter's wedding? Using your inheritance to pay for Stanford?
But you are using strawman arguments also. People in bad financial situations are not all high income folks who make bad spending decisions. Phinneas J made a very good reference above to how "expensive it is to be poor" There are many people who are born into poor families who simply don't have the options those of us here take for granted: LIving in low crime neighborhoods, acess to good schools, quality healthcare, cheap financing and credit, and on and on and on.

When you have to start working at 15 years old to help your parents put food on the table its hard to put in the kind of time studying at school to get the grades it takes for a full ride merit scholarship. So you end up with a lifetime of blue collar jobs and fall victim to all the predatory lending and other nastiness our system has to offer. People DO get stuck in viscous cycle and its VERY hard to get out of this life once you are trapped in it.
Last edited by jharkin on Tue Jul 03, 2018 12:16 pm, edited 2 times in total.

coachd50
Posts: 93
Joined: Sun Oct 22, 2017 10:12 am

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by coachd50 » Tue Jul 03, 2018 12:29 pm

KlangFool wrote:
Tue Jul 03, 2018 11:06 am
vitaflo wrote:
Tue Jul 03, 2018 10:52 am
KlangFool wrote:
Tue Jul 03, 2018 10:07 am
I cannot speak about the survey. I can only talk about my peers and my neighbors.
If you can only speak to neighbors and peers then you can't in the same breath also say it's never about income.
vitaflo,

https://www.theatlantic.com/magazine/ar ... me/476415/

It is never about income as per my peers and neighbors. And, as per the URL that I posted, it was not about income either.

The US median income is about 60K. My neighborhood's median income is 150K. It is never about income in my neighborhood.

KlangFool
Adding the "in my neighborhood" improves the accuracy of your statement a great deal. I think the issue about the original generalization is that some people here know or work with individuals where the level of income is such that while technically one could argue it is a spending issue, it isn't always realistic argument.
Last edited by coachd50 on Tue Jul 03, 2018 1:15 pm, edited 1 time in total.

smitcat
Posts: 1623
Joined: Mon Nov 07, 2016 10:51 am

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by smitcat » Tue Jul 03, 2018 12:34 pm

jharkin wrote:
Tue Jul 03, 2018 11:40 am
sabtastic wrote:
Tue Jul 03, 2018 7:45 am

KlangFool is 100% correct here.

It is not about income, it is ALWAYS about SPENDING. That sob story is sad, but almost all of those things that "just happened" were lack of planning and poor decisions. Everyone here would say that financing a $50,000 car is a bad idea if you make 25k a year. Why doesn't anyone say it is a bad idea to purchase an education if the total cost is 3-5x your household income? Same goes for purchasing a house that is 8-10x your income. Yes, these "assets" appreciate over time and perhaps may even eclipse what you spent on them eventually, but if you can't afford them you are going to fail. I have an acquaintance that makes seven figures a year who has more debt than he can afford. The janitor at my employer is paying his son's way through nursing school out of pocket because he lived below his means and put money aside for decades.

Am I alone in feeling absolutely no sympathy for someone who liquidates their 401k to pay for their daughter's wedding? Using your inheritance to pay for Stanford?
But you are using strawman arguments also. People in bad financial situations are not all high income folks who make bad spending decisions. Phinneas J made a very good reference above to how "expensive it is to be poor" There are many people who are born into poor families who simply don't have the options those of us here take for granted: LIving in low crime neighborhoods, acess to good schools, quality healthcare, cheap financing and credit, and on and on and on.

When you have to start working at 15 years old to help your parents put food on the table its hard to put in the kind of time studying at school to get the grades it takes for a full ride merit scholarship. So you end up with a lifetime of blue collar jobs and fall victim to all the predatory lending and other nastiness our system has to offer. People DO get stuck in viscous cycle and its VERY hard to get out of this life once you are trapped in it.
FWIW - I started to work when I was 17 to help pay the household bills. The area where we grew up was and still is a relatively high crime area although some of the schools are good. I know that it does not always result in a good ending but hard work and living below the means has paid off for us.

KlangFool
Posts: 9564
Joined: Sat Oct 11, 2008 12:35 pm

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by KlangFool » Tue Jul 03, 2018 12:38 pm

jharkin wrote:
Tue Jul 03, 2018 11:40 am
sabtastic wrote:
Tue Jul 03, 2018 7:45 am

KlangFool is 100% correct here.

It is not about income, it is ALWAYS about SPENDING. That sob story is sad, but almost all of those things that "just happened" were lack of planning and poor decisions. Everyone here would say that financing a $50,000 car is a bad idea if you make 25k a year. Why doesn't anyone say it is a bad idea to purchase an education if the total cost is 3-5x your household income? Same goes for purchasing a house that is 8-10x your income. Yes, these "assets" appreciate over time and perhaps may even eclipse what you spent on them eventually, but if you can't afford them you are going to fail. I have an acquaintance that makes seven figures a year who has more debt than he can afford. The janitor at my employer is paying his son's way through nursing school out of pocket because he lived below his means and put money aside for decades.

Am I alone in feeling absolutely no sympathy for someone who liquidates their 401k to pay for their daughter's wedding? Using your inheritance to pay for Stanford?
But you are using strawman arguments also. People in bad financial situations are not all high income folks who make bad spending decisions. Phinneas J made a very good reference above to how "expensive it is to be poor" There are many people who are born into poor families who simply don't have the options those of us here take for granted: LIving in low crime neighborhoods, acess to good schools, quality healthcare, cheap financing and credit, and on and on and on.
jharkin,

My point is even with all those advantages and in a household that achieved the annual median household income of 150K, they are not that financial well off as you think they are. Many of my peers are "House Poor". They are just a short-term unemployment from a financial disaster.

Even in my case with a lower cost house, I still have to be lucky and employed long enough to avoid a financial disaster.

KlangFool

2015
Posts: 1715
Joined: Mon Feb 10, 2014 2:32 pm

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by 2015 » Tue Jul 03, 2018 12:46 pm

caffeperfavore wrote:
Tue Jul 03, 2018 9:45 am
Actually, this is 40% of adults that would bother responding to a survey cannot cover a $400 emergency.

From this subset of the actual population, how many are young adults? A lot of 19 year olds couldn't and they don't care. How many are students? I probably fell into this category in college and grad school. How many are just starting out in their careers? A lot of other people can experience temporary hardships before getting back on their feet.

My point? I don't think this is as dire as it makes it sound.
Thank you for this excellent example of second order thinking. Without even having to give up the few seconds of life required to skim this, when engaging in second order thinking it's obvious it suffers from Sample Bias:
Sample Bias: Failure to recognize one is extrapolating results from a small sample size (e.g., “4 out of 5 doctors recommend” probably means only 5 were sampled total (includes cherry-picking of data to “prove” a point). Leads to taking action based on faulty conclusions, such as overestimating/underestimating results.
The overconfident who insist on swimming in the deep end of the complexity pool are the last to realize the sharks swimming beneath them are of their own creation.

User avatar
Kenkat
Posts: 4161
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by Kenkat » Tue Jul 03, 2018 12:50 pm

There are some truly poor people who can’t afford a $400 emergency because they just don’t have the income needed to cover more than basics. They are out there.

Then there is another segment who make choices to consume and not save and they can’t afford a $400 emergency due to choices made, not income.

Keeping this actionable, I have always felt like anything under a $1000 expense doesn’t even hit the radar. It’s just another bill. Over $1000 can also typically be covered as part of cash flow but may require some movement of money from say a money market account to checking when the bill comes due. I’ve always felt I want to be able to get my hands on a minimum of $10k in a couple of days if really needed and have the ability via credit or taxable retirement savings to go higher in a real emergency situation.

I’ve never really had a reason to tap the emergency fund for an actual emergency. The closest would have been an unplanned furnace / AC replacement at $8k (used HELOC for that) and an opportunity to buy some property at the back of my yard for $10k (paid cash for that).

inbox788
Posts: 5276
Joined: Thu Mar 15, 2012 5:24 pm

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by inbox788 » Tue Jul 03, 2018 2:27 pm

Kenkat wrote:
Tue Jul 03, 2018 12:50 pm
There are some truly poor people who can’t afford a $400 emergency because they just don’t have the income needed to cover more than basics. They are out there.

Then there is another segment who make choices to consume and not save and they can’t afford a $400 emergency due to choices made, not income.

Keeping this actionable, I have always felt like anything under a $1000 expense doesn’t even hit the radar. It’s just another bill. Over $1000 can also typically be covered as part of cash flow but may require some movement of money from say a money market account to checking when the bill comes due. I’ve always felt I want to be able to get my hands on a minimum of $10k in a couple of days if really needed and have the ability via credit or taxable retirement savings to go higher in a real emergency situation.

I’ve never really had a reason to tap the emergency fund for an actual emergency. The closest would have been an unplanned furnace / AC replacement at $8k (used HELOC for that) and an opportunity to buy some property at the back of my yard for $10k (paid cash for that).
Like many things, it's multifactorial. Income is a big part. Another big part is savings rate. In the 70's a household making $25k and a savings rate of 15% means they were saving $300/month. They could cover the $400 expense (not adjusted for inflation) by putting it on their credit card and paying it of in a month or two, forgoing the ongoing savings. The $50k family today at 2% savings rate is barely saving $100/month, and even a $200k family saving 2% is only saving $400/month, not too different a place as the 70's family; can cover the expense at the cost of giving up savings for a month.

https://tradingeconomics.com/united-sta ... al-savings

Discretionary spending is another item that's highly variable for some and quite fixed for others, depending now how far below their means they're spending.

randomguy
Posts: 6010
Joined: Wed Sep 17, 2014 9:00 am

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by randomguy » Tue Jul 03, 2018 2:44 pm

inbox788 wrote:
Tue Jul 03, 2018 2:27 pm

Like many things, it's multifactorial. Income is a big part. Another big part is savings rate. In the 70's a household making $25k and a savings rate of 15% means they were saving $300/month. They could cover the $400 expense (not adjusted for inflation) by putting it on their credit card and paying it of in a month or two, forgoing the ongoing savings. The $50k family today at 2% savings rate is barely saving $100/month, and even a $200k family saving 2% is only saving $400/month, not too different a place as the 70's family; can cover the expense at the cost of giving up savings for a month.

https://tradingeconomics.com/united-sta ... al-savings

Discretionary spending is another item that's highly variable for some and quite fixed for others, depending now how far below their means they're spending.
A 1970 family making 25k would be the same as 166k today. A 1979 family would be 92k. I think you will find that families today making ~50%+ more than the national average have a much higher rate of covering a 400 dollar emergency than 40%.

About 1/3 of us households make under 30k/year. I am not really shocked that most of them struggle with a 400 dollar bill. another 20% or so make under 50k. Again it isn't exactly stunning that a lot of them have no savings either. Whenever you see national averages for things like this, you have to think about more than just your circle of friends and think about the whole population of the US.

User avatar
VictoriaF
Posts: 18407
Joined: Tue Feb 27, 2007 7:27 am
Location: Black Swan Lake

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by VictoriaF » Tue Jul 03, 2018 2:57 pm

Before the Bogleheads point fingers at the others they should critically evaluate their own attitudes. I frequently see in the Forum references to the "cash drag" and "making money to work" for you. When you are trying to maximize your returns you lose the safety margin.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

User avatar
Cycle
Posts: 569
Joined: Sun May 28, 2017 7:57 pm
Location: Minneapolis, USA

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by Cycle » Tue Jul 03, 2018 3:41 pm

In our fanciest large neighborhood of the twin cities, Edina, the median home price/income are $475k/$87k. That's 5.5 times income. Seems like a lot to me and no surprise one would be stretched thin trying to make ends meet after keeping up with the Joneses.

I'm sure hcol areas have rediculous income/housing multipliers, though less frost-bite

User avatar
TheTimeLord
Posts: 5284
Joined: Fri Jul 26, 2013 2:05 pm

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by TheTimeLord » Tue Jul 03, 2018 3:48 pm

Cycle wrote:
Tue Jul 03, 2018 3:41 pm
In our fanciest large neighborhood of the twin cities, Edina, the median home price/income are $475k/$87k. That's 5.5 times income. Seems like a lot to me and no surprise one would be stretched thin trying to make ends meet after keeping up with the Joneses.

I'm sure hcol areas have rediculous income/housing multipliers
Wouldn't it be likely that a greater percentage of people below the median rent apartments instead of buy homes? Also, roughly one third of Americans own their home outright.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

User avatar
TheTimeLord
Posts: 5284
Joined: Fri Jul 26, 2013 2:05 pm

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by TheTimeLord » Tue Jul 03, 2018 3:50 pm

danielc wrote:
Mon Jul 02, 2018 7:25 pm
I wasn't sure whether this belongs here ("News") or under personal finance.

Fed survey shows 40 percent of adults still can't cover a $400 emergency expense

I was really surprised by this. You usually hear about how you are supposed to have 3-6 months of expenses saved in an emergency fund. I have been feeling a bit financially incompetent because I don't have that much saved (I'm currently saving). But there have been very few times in my life in which I wouldn't have handled a $400 expense.
Besides feeling great empathy for anyone in this situation and being sad so many live like this what exactly should one do with this information?
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

HIinvestor
Posts: 1591
Joined: Tue Apr 08, 2014 3:23 am

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by HIinvestor » Tue Jul 03, 2018 3:55 pm

In our state, half the kids attending public school are on free or reduced lunch. When your funds are low and the cost of living is high (as it is in our state), there really isn't all that much money to save or budget. I'm really not sure what each of us individually are supposed to do with this information. Here are income guidelines for free & reduced lunch: https://www.federalregister.gov/documen ... guidelines

One thing that does happen is that more people live together than traditional nuclear families, so they can pool resources. This combining people in a household happens a lot in HI--with extended family and non-relatives living together to help reduce housing costs.

When we bought our house 3 decades ago, it cost significantly more than 10x our annual income. There weren't a lot of other homes that we wanted to live in that were much more reasonably-priced and while we were waiting and watching, the housing prices in the areas we were looking doubled in 5 years. Yes, we spent more than we "should" have on housing, especially when we had really reasonably-priced rent, but since it worked out for us it's OK?

I am concerned that with low, often stagnant wages and ever-rising housing prices it will be increasingly difficult for young people to afford good housing options. Yes, folks can live where COL is lower, but that involves compromises on job options, wages, and being near extended family and more.

MathWizard
Posts: 2919
Joined: Tue Jul 26, 2011 1:35 pm

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by MathWizard » Tue Jul 03, 2018 4:17 pm

sabtastic wrote:
Tue Jul 03, 2018 7:45 am
...
Why doesn't anyone say it is a bad idea to purchase an education if the total cost is 3-5x your household income?
...
Using your inheritance to pay for Stanford?
While I agree with you in principle, I'm not sure I agree with this one. I consider an education which
increases your human capital is in a different category from a consumable item, cars especially, but
also housing costs. I consider education more of an investment. It may be a bad investment or a good
investment depending on how marketable the skills are. One can estimate the investment return, but
like all investments, the outcome is not assured.

Do you mean to compare to expected income after graduation, not while you are in school, or are
you thinking of parents paying for their children's education?

While at the University, most years, my total costs exceeded my ability to pay, so I had to take out
loans. In total, through a PhD, they were less than one year's income upon graduation, so I considered
that a good investment.

User avatar
Cycle
Posts: 569
Joined: Sun May 28, 2017 7:57 pm
Location: Minneapolis, USA

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by Cycle » Tue Jul 03, 2018 4:29 pm

TheTimeLord wrote:
Tue Jul 03, 2018 3:48 pm
Wouldn't it be likely that a greater percentage of people below the median rent apartments instead of buy homes? Also, roughly one third of Americans own their home outright.
Yes, except WanderingDOC and other enlightened individuals. One would just need to look at loan applications for new purchases. How much income and assets do these people have that are buying $500k or 1MM houses. Not sure where to find that data.

Median net worth of homeowners is $200k vs $5k for renters. Median house price in the US is 199k. I would think based on this low net worth that homeowners are probably saving less than they could (though still more than most renters).

User avatar
LadyGeek
Site Admin
Posts: 46837
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Fed survey: 40% of adults cannot cover a $400 emergency expense

Post by LadyGeek » Tue Jul 03, 2018 4:45 pm

This thread has run its course and is locked (topic exhausted, getting contentious). See: Locked Topics
Moderators or site admins may lock a topic (set it so no more replies may be added) when a violation of posting policy has occurred. Occasionally, even if there are no overt violations of posting policy, a topic (or thread) will reach a point where the information content of the discussion has been essentially exhausted and further replies are much more likely to cause distress to the community than add anything of value.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Locked