
Almost 40% of Americans Would Struggle to Cover a $400 Emergency - Geeek
https://www.bloomberg.com/news/articles/2019-05-23/almost-40-of-americans-would-struggle-to-cover-a-400-emergency
======
gojomo
Headline strongly debunked here:

[https://twitter.com/p_millerd/status/1118071142311288838](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.

~~~
coldtea
> _Headline strongly debunked here:_

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.

~~~
suresk
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.

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%?

~~~
coldtea
>* suresk 1 hour ago [-]

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.

------
duxup
It is scary stuff as I don't think I can make a visit to a doctor for a non
checkup type situation (injury) without the bill being more than $400.*

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.

~~~
dragonwriter
> It is scary stuff as I don't think I can make a visit to a doctor for a non
> checkup type situation (injury) without the bill being more than $400.*

> 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.

~~~
duxup
Plans are way more complex to say what a $400 bill is in relation to the
quality of the plan.

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 ...

------
samcampbell
While a surprising statistic, this number has actually improved in the last
five years. "This is an improvement from half of adults in 2013 being ill-
prepared for such an expense [$400]" \- Report on the Economic Well-Being of
U.S. Households in 2017 [0]

[0][https://www.federalreserve.gov/publications/files/2017-repor...](https://www.federalreserve.gov/publications/files/2017-report-
economic-well-being-us-households-201805.pdf)

~~~
gshubert17
Here's the actual Federal Reserve Board news release from which Bloomberg made
their report:

[https://www.federalreserve.gov/newsevents/pressreleases/othe...](https://www.federalreserve.gov/newsevents/pressreleases/other20190523b.htm)

------
war1025
I always wonder what proportion of that group is due to insufficient income,
and what proportion is due to terrible financial literacy.

~~~
the_gastropod
I don't think these things are necessarily mutually exclusive. A fair bit of
financial literacy should enable someone to save at least _some_ income even
at minimum wage (barring catastrophes and good old fashioned bad luck). The
lifestyle you'd need to save on a minimum wage is pretty unsavory, though, and
not many would enjoy living that way forever.

~~~
zanny
I feel like this might be coming from a position far above minimum wage,
because in practice the poor aren't that stupid. You get trapped in cycles of
incredible housing expenses keeping you in constant short term debt and the
lack of income leading you to constantly seek new revenue sources, but being
in that condition is inherently expensive and money in is always trying to
fill up a bucket with a hole in it.

~~~
bluGill
Back in my college days I was able to live on minimum wage, including paying
tuition. I knew several other people doing the same thing and even supporting
a family on their income. Their housing expenses where a lot lower than you
would believe possible: they lived in a tiny apartment in the bad part of
time: they had a warm place (hot in summer: no AC), a dry roof, a kitchen and
bathroom. We all had a cheap car, with enough money set aside to fix it as
required.

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.

~~~
Spellman
But this was temporary pain for future gain.

Imagine doing that for your whole life.

~~~
the_gastropod
This is where a little knowledge can go a long way. Assuming a ~10% interest
rate (just to make the math easy, and is approximately what you'd expect in
the stock market), it takes ~6.5 years of constant savings before your saved
money earns more than the amount saved each year.

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.

------
pkaye
I see these kind of statistics but then you see phones in the range of
$400-$1500. An average car costs $25-$35k according to data online. And you
see pictures of people with grandiose homes if you have ever seen any of those
home shows. Or people going out for grand meals or pricey drinks. Somehow
those expensive things continue getting sold yet 40% struggle to cover a $400
emergency.

~~~
throwayEngineer
I run a website that focuses on math driven, low cost living.

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.

~~~
SamReidHughes
Definitely. The only reason many software developers don't live paycheck to
paycheck is because it is actually a hassle to spend that amount of money.

------
korethr
I see articles like this from time to time, and from my own experience, can't
help but wonder how much of said inability to cover a $400 emergency isn't
self-inflicted.

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.

------
wonder_er
The article's claim is almost entirely bullshit. The reasons why are nicely
outlined here:
[https://twitter.com/p_millerd/status/1118071142311288838](https://twitter.com/p_millerd/status/1118071142311288838)

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".

~~~
why-el
For me, having to put it on a credit card is effectively not being able to
cover it, so the numbers do check out, from this perspective. Again, we are
talking an emergency, not a mortgage.

~~~
geezerjay
> For me, having to put it on a credit card is effectively not being able to
> cover it,

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.

~~~
SilasX
Per my other comment [1], that's why such surveys (and, I'll add, their
reporting), should _sidestep_ these judgments calls and just find out _in what
precise sense_ someone can or can't cover the expense.

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".

[1]
[https://news.ycombinator.com/item?id=19994836](https://news.ycombinator.com/item?id=19994836)

------
kcorbitt
In the Bay Area at least, this is pretty understandable. 40th-percentile
income in the Bay Area is $66k [1]. An income-tax estimator puts after-tax pay
for a family of 4 on that salary in California at $55k [2].

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...](https://statisticalatlas.com/metro-area/California/San-
Francisco/Household-Income)

[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](https://smartasset.com/taxes/income-taxes#WF5trlFESC)

~~~
GuiA
Congrats on managing to live frugally with a family of 4! Certainly an
accomplishment.

Out of curiosity, how much of that $64k is housing?

~~~
kcorbitt
We spent $33k on rent and utilities! And that's a deal, compared to what many
of our neighbors are paying. We live near SF to keep my commute into the city
manageable, and there simply isn't cheap housing to be had in the area.

------
pavel_lishin
Throwing my own anecdote into the barrel:

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.

~~~
john-radio
Don't pay it! You negotiate with healthcare providers! Don't tell them you
have the money.

~~~
xmprt
This is the right approach. A healthcare provider would prefer $10k (<\-
arbitrary number) now over the _potential_ to get $20k while also having to
deal with debt collectors.

~~~
pavel_lishin
What happens if I negotiate down, and three months later Aetna finally unfucks
my asshole and agrees to pay the $20k?

I guess this is a question for a lawyer, and not a stranger on the internet.

------
RickJWagner
With super-low unemployment, and rising wages, this is truly of concern.

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.)

------
jorblumesea
I wonder how much the American economy is propped up by rampant debt spending
and financial illiteracy. If everyone in the US saved 20% of their income, and
didn't over leverage for that new truck, would we see a noticeable economic
impact?

~~~
perfunctory
People not saving for pension is a ticking economic bomb. The economy might be
prompt now but I am afraid to think about what happens when the current
working generation retires.

~~~
bluGill
You will so the current generation at WalMart in a few years pushing carts and
other such tasks when they are forced to realize their retirement savings
doesn't cover their needs.

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.

------
herplederple
What a dishonest title/article. Taken directly from the report itself:

"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."

------
throwaway13000
Can someone explain to me how this is possible? America is among richest
nations in the world. Plus its citizens have access to all amenities of life.
How come they don't have enough for emergency expenses? Is it because of
wealth inequality? Or is it that its a mature capitalist society, so most
things are priced such that people have very little disposable income?

~~~
wtdata
I would say it's because of their consumerist culture and financial
illiteracy, not because of extremely low wages.

I wonder how many of these 40% have a high end smartphone and a big LCD TV in
their living room.

------
coldtea
> _Almost 40% of Americans Would Struggle to Cover a $400 Emergency_

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...

~~~
maerF0x0
> 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...

------
akshayB
I am bit surprised by the fact that with unemployment rate that is all time
low, people should eventually see that savings amount go up overall. This is
almost saving like $8 per week which is close to hourly minimum wage.
Personally I think either people spend way too much money or they don't follow
strict discipline of saving small (%) of their income.

~~~
mAEStro-paNDa
Perhaps instead the employment rate doesn't tell the whole story?

~~~
cirgue
The people working in the sharing economy because they don't have other
options for income get counted in employment statistics. The PhD working at
starbucks gets counted in the employment statistics. People who are not
actively seeking employment don't. The unemployment rate might be low, but the
labor participation rate has been hovering around 63% since 2016. It was above
66% for most of the 90s through the early 2000s, until the financial crisis.
Employment statistics are, at best, useful for comparing last year to this
year, or last quarter to this quarter. They say little about the overall
structure of the economy.

------
prepend
“Among the remaining 4 in 10 adults who would have more difficulty covering
such an expense, the most common approaches include carrying a balance on
credit cards and borrowing from friends or family”

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...”

~~~
Raphmedia
> Having to carry a credit card balance isn’t much of a struggle.

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.

~~~
mamon
>> Let's say you put $400 on a CC that has 18% interest rate

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 :)

~~~
ben509
Lenders in Poland still need to make a profit, so are they more restrictive in
issuing cards, or is it harder to default on a loan? Or does the government
subsidize them?

~~~
mamon
At 11% interest rate you can still make a lot of profit. I don't think banks
are restrictive on issuing them, basically anyone who is gainfully employed
can get one.

