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Almost 40% of Americans Would Struggle to Cover a $400 Emergency (bloomberg.com)
112 points by Geeek 24 days ago | hide | past | web | favorite | 140 comments

Headline strongly debunked here:



"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.

>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.

I guess a lot hinges on the elasticity of 'struggle' here.

Having adequate credit, and being able to pay that off within a month, with zero impact on your ability to pay other bills, doesn't sound like too much of a 'struggle' to me. Sure, people complain, it's inconvenient, some other discretionary expenditures will be clipped, you might pay some extra interest or late fees, boo-hoo. But it's not necessarily a symbol of notable hardship on either historical or international levels. (And if these people didn't have easy credit they're confident they could pay off: they'd have kept more hard cash around, like is common in other countries.)

Just like there's a 'hedonic treadmill', where things that used to bring pleasure wear out from familiarity, there's "complaint inflation", in a generally rich & comfortable place like the USA, where whatever remaining nuisances exist become headline news, and get described in grandiose language previously reserved for deathly serious hardships.

I'm sure something like 40% of Americans "struggle" to get out of bed some mornings. Or "struggle" to choose between a $400 and a $1200 smart phone. Or "can't even" achieve some imprecise euphemestic lifestyle goal like "making ends meet" or "the American Dream". It's mostly hyperbole.

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%?

>* 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.

If you looked at that table you would notice that the total is more than 100%. So the analysis in your last paragraph is not better than his.

headline: 40% would struggle to cover $400

debunker: actually the data says 12%

data: 12% can't cover $400, 28% would have to borrow the money or sell something to cover $400.

original author: yeah, I added 12 and 28 to get 40 and said "struggle"

Newspapers definitely use narratives to sell papers (or get clicks these days). This is a thing that I don't deny. It has always been a thing.

But it wasn't quite the strong debunking that I expected

Also same data: 38.8% pay it with CC that they pay off, 41.8% pay it with cash. Put two of them together and you get $80.6% not struggling at all.

That data is garbage.

Interesting to me CC is basicaly a loan. That is not comfortable no? To me borrowing money seems like last emergency option. If i cant pay 400usd without borrowing it that seems like struggle.

As it was mentioned in the thread several times using a credit card and paying it off is just using free money with some extra benefits. I.e. better consumer protection, perks (miles/cashback), expense tracking, etc.

I personally use CC for all my payments unless it is not accepted.

I don't see how "I would have to accrue unexpected and emergency debt to manage this expense" is any different from "I can't afford this expense"

"Afford" is a four-letter word. You can break it into:

1) I have the cash ready to spend right now or in liquid assets.

2) I can get the cash, but from an account/asset I'd rather not withdraw from (IRA, jewelry).

3) I can go into debt to pay it, and it wouldn't make a big difference over the next year.

4) I can go into debt to pay it, but my financial situation would be close to bankruptcy over the next year.

5) I can't access that kind of money by any means.

A good survey should iron out this spectrum of "affording" the expense to make the result robust and easy to interpret.

the difference is that the former requires credit. Some people are so poor they don't even have that.

I'd say that both count as "struggle", though

Sorry, but this thread does not "strongly debunk" the headline by any means. This is pure nitpicking, or trying to center on what does "struggling" to cover a cost really mean.

The data is still sound, whether you think having to borrow or sell something to pay an expense is still not being able to pay that expense or not.

Except putting something on a credit card that you routinely pay off at the end of the month isn't really borrowing. OK. Some percentage will have to cut back to make the end of month payment. But a lot of people routinely put just about everything on credit cards for perfectly rational convenience/rewards reasons.

I understand and I do not doubt that those people exist. However, they don't make up all credit card holders. There are still people who use a credit card rarely or only for emergencies.

Further, pointing out the distinction between these two groups does not strongly debunk the data. That's nit-picking, at best. This should still be concerning, even if it's improved over the past few years.

However, the survey did distinguish between those who were paying off at the end of the month and those who weren't. A credit card balance that's paid off at the end of the month is effectively using cash.

Of course, whether cash or put on a credit card to be paid off at month's end, that doesn't really say anything about how painful that unexpected expense is. One can cover an expense and realize they're not going to be able to take a vacation this year. There's a continuum between "I can't pay this" and "Whatever."

But it's hard for me to see cash vs. checking account vs. credit card that will be paid off in a few weeks as materially different.

Eh, his response is also misleading in places.

Here, he recognizes that there's double counting but still adds categories in a nonsensical way: https://twitter.com/p_millerd/status/1118071185311330309

The total of all responses is 140%, so there's way more overlap than he seems to account for. Isn't it likely that a lot of that overlap is between the only two answers that mean you have the full amount on hand?

Here, for example: https://twitter.com/p_millerd/status/1118071193393750016

Sure, 83% can still meet their other bills, but that's because, according to the other question he pulls out, half of them expect to borrow money to make it work. The other 15% lines up pretty neatly with the 12% who reported they couldn't beg, borrow or steal $400.

So yes, the newspaper headlines are overstated and imprecise, but the "debunking" is also pretty incoherent.

Headlines that say "Fed survey shows 40 percent of adults still can’t cover a $400 emergency expense" are technically incorrect. A majority can cover the expense with either cash or credit.

But I think that misses the point.

Only 41.8% have enough cash on hand. That is, a majority of Americans are living paycheck-to-paycheck. They're not saving money or building wealth - they're surviving.

Maybe this is the norm in other countries. Maybe it's the historical norm. But it doesn't bode well for wage earners.

Only 41.8% pay it with cash does not mean others do not have cash.

I routinely pay everything through credit cards that give me cash back and a nice organized ledger or all purchases despite having plenty of cash. A significant portion of people I know do the same thing.

"Struggle to pay" is not the same as "couldn't pay" It may be pedantic, but that's also the premise of the argument referenced in the tweet. So this article got the headline correct, but others ... not so much.

"Struggle to pay" introduces an inflammatory ambiguity that generates the undesirable heat/light ratio that journalists should be avoiding in the first place.

His point about the misleading headline is good. But the poverty stat still stands. Needing to borrow to come up with $400 is slightly better than not having $400, but, like... not by a lot?

hah! I saw this article, came here to post the same twitter thread.

Good eye, /u/gojomo.

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.

Not to mention that if you're in that <$40,000 income bracket, you're almost guaranteed driving a car that has a very high probability of needing a $400 (or worse) repair quite regularly. You also likely live somewhere where you need that car functioning to get to work.

> 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.

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


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 ...

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]


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


This feels a bit like damning with faint praise; the most likely cause of an emergency debt is a trip to the hospital, and the average deductible of a US employee on private health insurance is $1500 (closer to $3000 for family coverage).

(We don't need to bother considering people who don't have jobs and thus don't have insurance; the failure mode for them, as before, is "resign yourself to lifelong financial ruin and dodging debt collectors".)

So the question then is: what percentage of households can cover a $1500 emergency bill, rather than a mere $400 bill? And, at the rate of growth since 2013, how many decades will it take for that number to creep up to 50% (and don't forget to adjust for inflation).

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

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.

And of course, billions of dollars are being spent to convince you that you shouldn't actually live that thrifty lifestyle, even if you are able to.

This is the bigger thing. "Go to the movies, buy Netflix, buy Amazon Prime" etc etc etc. There's so much more things the financially illiterate feel compelled to buy these days.

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.

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.

But this was temporary pain for future gain.

Imagine doing that for your whole life.

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.

The thing is.. when you refuse endure this temporary pain, the natural consequence is that the rest of your life will be filled with more pain.

Sadly for some of us (myself included at many times in my life), we just can't make those decisions as easily as we hoped. Willpower and determination seemed so easy when I was young.

>because in practice the poor aren't that stupid

I think it would be far better defined as learned helplessness in financial matters instead of being stupid. They can be overall smart people, but past experience has taught them views of money that are not beneficial to financial stability. They might even be able to give a lesson on good financial decision making, but on an emotional level they have trouble applying it to themselves.

A much more jarring example of this is behaviors resulting from food insecurity in children. Children who come from very food insecure situations will hoard food even when they are now in a food secure environment. Often this will include hoarding food that does not keep, and any attempts to change this behavior just result in the hoarding being better hidden. From what I remember the advice of foster/adoptive parents in this situation is to provide food meant for hoarding that the child can stockpile and to let the next few years of food security slowly get the child to adjust, recognizing that some level of food hoarding might occur throughout their lifetime.

Not when a minimum wage isn't a living wage. That sort of by definition means you don't have enough extra to save.

How is a living wage defined, precisely? Is it defined as the wage an "average" person would need to earn to live? Or the wage a "frugal" person would need to earn to live?

From this page: "Due to the flexible nature of the term "needs", there is not one universally accepted measure of what a living wage is and as such it varies by location and household type"

Which I think is to the gp's point...

Cool, the lack of a living wage _under all of those definitions_ means the lack of ability to save.

Is your claim that there is no way to live under a minimum wage in America right now?

For the vast majority of people in the US, completely supporting themselves on 40 hours a week of a minimum wage is impossible, yes.

I have a book recommendation that may help you think a little outside the box when it comes to living expenses: https://www.amazon.com/dp/145360121X/?tag=oildepletio03-20

Not only is 40 hours / week of a minimum wage job totally livable, the author of this book would be able to save over 50% of such salary. Is it unusual? Yes. Is it easy? Haaaail no. But impossible? Please.

The average cost of healthcare is more than his yearly expenses.

Here's a hint, pithy books written by those born into wealth about how the poor just don't have discipline aren't generally worth the paper they're printed on.

This is why we can’t have difficult conversations about these things. My family was on food stamps when I was growing up. I’m a Bernie supporting über-liberal. I do not think the poor are poor because of lack of discipline.

I understand, and share, your frustration with poor shaming. But please understand nobody here is doing that.

Literally the average cost of healthcare is more than all of this guy's expenses. His experiences don't line up with reality for most people in the US.

The one avoiding difficult conversations is you.

This’ll be my final response to you: those making minimum wage don’t typically pay the average cost for anything. Their healthcare will either be:

- Covered (at least partially) by their employer (like most Americans)

- Covered by Medicaid

- Heavily subsidized under the ACA

Don't most people making minimum wage qualify for Medicaid?

Getting Medicaid is very time consuming, and people making minimum wage don't have a lot of extra time.

Yeah, even when I was younger and only had irregular, low paid work, I never had less than a few thousand dollars in cash available in case of emergency. Sure, I had to defer things I wanted to have that but it there was more than once that it kept my life from going off the rails when an emergency did arise.

Indeed it may somewhat be a result of financial illiteracy, but today's young people are significantly better educated than previous generations (https://en.wikipedia.org/wiki/Educational_attainment_in_the_...).

With the cost of education, healthcare, and housing all rising significantly faster than inflation, it's possibly just harder for many to save up that emergency fund. Indeed, it's particularly difficult to justify having an emergency fund if you're also facing five figure 8% interest student loans.

A difference I've noticed between myself and many of my friends is that I view savings as "Money you don't touch", whereas they view it as "Money you haven't spent yet"

That difference in perception leads to me having a constantly growing bank balance, while they have developed a habit of saving then splurging, repeatedly. Which isn't really building wealth, but more buffering for large pre-planned expenses.

I mostly have your attitude, but it isn't in fact correct. Money saved is to be splurged with latter. However my splurging will be on emergencies or a nice retirement. Anything leftover after the above should be on toys today (though I might need to save for them)

In my case I don't particularly want more toys, which makes my approach easier for me than for others. I personally view it as not needing to work as hard.

I have enough money, and have enough fun, so I can relax a bit rather than pushing myself for more income.

I think a higher number of people taking out five figure 8% loans that aren't used to purchase an education making it relatively painless to pay back, is solid evidence of less financial literacy. There are still ways to get a college degree without taking out 5 figure loans. You just have to go to a cheaper school and work while in college. It's what I did.

I mean, that’s the thing though. Undergrad in state tuition plus R&B for NCSU and UTexas (programs I got in state tuition for) is at 9k and 10k per year with 5% interest for undergraduate, and more like 6-8% for MS students.

You can be employed in a high paying sector like tech after going to an in-state engineering school, and still l end up with $2k tacked on in your first year of employment. So then what is more rational: pay off the loan as fast as possible, or build up an emergency fund with a generous 2% ROI.

The education system does do a poor job of educating people on financial matters, however.

There was just a post on HN the other day about how the top priority for Millenials and Gen Z is travel, so I would say that the younger generations are not significantly better at financial literacy and in fact may have expectations even more out of line with their financial reality than other generations.


Yeah there were times that even when I was making a ton of cash at a startup, living in SF, a $400 emergency could kick my ass too because I was such a financial idiot.

It seems more like a cumulative effect than one cause. Rising costs [of housing, health care, education, etc], stagnant wages, loss of retirement support, increased dependence on credit, recessions, and a continued disposable consumerism, all have an effect not just on personal wealth, but what one's wealth can do. And I don't think people were significantly more financially literate 20 years ago.

When you know someone who is $400 away from absolute ruin, it's reasonable to ask them whether this is due to personal failings or external forces.

When 40% of your population is dealing with it, you have an economic problem that needs to be addressed on a policy level.

Why? This was always the case in world's history, and we survived.

If it was possible to address it with policy at a relatively low cost, then I'd be up for it, but something tells me that there is no policy that can make 100% (or even 90%) of people make rational life choices. Which means that the only option left is cleaning the messes caused by irrationality, and that's very expensive.

40% of the population isn't $400 from ruin. They just can't easily absorb unexpected expenses. Given the frequency of unexpected expenses, the majority of the population obviously figures out how to get by.

If 40% of the population was that close to "absulute ruin" there would be rioting in the streets.

They mostly do it with emergency funds from friends and family who are not necessarily any better off, selling things off, and putting off essential maintenance. Sometimes they can get by this way for a long time, but it's not sustainable.

Or if all else fails, putting it on a high interest credit card.

I'd suggest that these groups are less distinguishable, or that there is more overlap of these groups, than you may think.

Indeed. Most of my family falls into both categories.

One the one hand it is infuriating to see them pay more for everything they buy because they are paying interest on everything they buy partly because they buy stuff they don't need or buy it sooner than they need to.

On the other hand there are incredible cultural pressures in america to spend spend spend and get newer/better stuff than you need (cars, houses, phones) and almost no cultural pressure to be prudent and responsible.

Probably doesn't help that there is a whole 'industry' whose only function is to capture 5-35% of the income of the poor and distribute it to the rich.

What industry are you referring to?

Credit card, payday loans, etc. To a lesser degree car loans.

It often does make sense for many people to take out a loan to buy a car, but car loans tend to be described to people in terms of 'monthly payment' rather than total cost, which makes it easier for people to make bad decisions (e.g., buying that new $30,000 SUV w a 5 year loan instead of the used $15,000 sedan w a 2 year loan).

> I always wonder what proportion of that group is due to insufficient income

According to the Social Security Administration [1]:

2017 Average net compensation: 48,251.57

2017 Median net compensation: 31,561.49

The FPL (Federal Poverty Level) income numbers for Medicaid and the Children's Health Insurance Program (CHIP) eligibility [2]:

>> $12,140 for individuals, $16,460 for a family of 2, $20,780 for a family of 3, $25,100 for a family of 4, $29,420 for a family of 5, $33,740 for a family of 6, $38,060 for a family of 7, $42,380 for a family of 8

Wages are not keeping up with corporate profits. That can't all be due to automation.

The minimum wage is only one factor linked to price inflation. We can raise wages and still keep inflation down to an ideal range.

Maybe it's that we don't understand what it's like to live on $12K or $32K a year (without healthcare due to lack of Medicaid expansion; due to our collective failure to instill charity as a virtue and getting people back on their feet as a good investment). How could we learn (or remember!) about what it's like to be in this position (without zero-interest bank loans to bail us out)?

> and what proportion is due to terrible financial literacy.

The r/personalfinance wiki is one good resource for personal finance. From [3]:

>> Personal Finance (budgets, interest, growth, inflation, retirement)

Personal Finance https://en.wikipedia.org/wiki/Personal_finance

Khan Academy > College, careers, and more > Personal finance https://www.khanacademy.org/college-careers-more/personal-fi...

"CS 007: Personal Finance For Engineers" https://cs007.blog


... How can we make personal finance a required middle and high school curriculum component? [4]

"What are some ways that you can save money in order to meet or exceed inflation?"

Dave Ramsey's 7 Baby Steps to financial freedom [5] seem like good advice? Is the debt snowball method ideal for minimizing interest payments?

[1] https://www.ssa.gov/OACT/COLA/central.html

[2] https://www.healthcare.gov/glossary/federal-poverty-level-fp...

[3] "Ask HN: How can you save money while living on poverty level?" https://news.ycombinator.com/item?id=18894582

[4] "Consumer science (a.k.a. home economics) as a college major" https://news.ycombinator.com/item?id=17894632

[5] https://www.daveramsey.com/dave-ramsey-7-baby-steps

Both being hallmarks of capitalism, does it really matter?

It matters because giving someone who can't manage money more money doesn't improve anything. Further, being semi-financially literate is probably a prerequisite for clawing your way out of poverty.

Financial illiteracy is a hallmark of capitalism?

Extracting as much money as possible from the financially illiterate absolutely is.

Extracting resources from those who don't protect those resources is core behavior in most evolved animals. That we do it with money instead of other resources due to capitalism does not change that the root problem is on a deeper level than even human nature.

Yep, only capitalism has poor people and people with poor financial literacy. rolls eyes

I didn't even sort of say that.

This is as disingenuous as the Fox News graphic citing a study that 99.6% of "poor" households own a refrigerator. Growing up poor impacts a lot of your future decision making priorities; poor financial literacy is often a symptom, not a cause.

The personal finance "industry" (racket) preys on the anxious and blames the victim:


My comment is disingenuous? How?

In the way I described, you're reversing cause and effect in many cases and putting the blame on people for being in a situation mostly out of their control. Poor people aren't poor because they spend all their money on avocado toast and fidget spinners, they're poor because wages have stagnated and the costs of housing, education, and healthcare have skyrocketed. The "welfare queen" stereotype of a poor person recklessly spending money doesn't reflect the evidence.


It costs a lot of money to be poor in the USA:

“The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.

Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.

But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.

This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness.”

― Terry Pratchett, Men at Arms: The Play

I didn't place any judgement one way or the other. I said "I wonder how much is from which cause" there is no value judgement in there.

My point is that the cause you cite isn't real (to a reasonable approximation).

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.

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.

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.

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.

The article's claim is almost entirely bullshit. The reasons why are nicely outlined here: 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".

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.

I think this is one of the reasons it is hard to interpret this data. You view it as effectively not being able to cover it, but I (and possibly a lot of people responding to the survey) view it as a normal mode of operation to put something on a card and pay it off when it is due (and thus pay zero interest).

I keep an emergency fund that is in the tens of thousands of dollars, yet I would cover a $400 emergency in this way - put it on a card and pay it off when due, pulling the cash out of my emergency fund to make the payment. The way the responses are worded makes it hard to get too much meaning out of it.


Response #1 and #3 equal ~80%. I'd count those as being able to cover it.

Many people use credit cards and pay it off in full on time (including me).

Why? That's exactly what credit cards are for. The couple of dollars in interest that you would pick up on a purchase of this scale is peanuts, even if it took you a while to pay it off.

Although I am not sure why you would pay cash for anything if you could use a card (for the same price) instead and get cash back or points.

Except that, in addition to the 41% who can pay in cash (or from their bank account), 39% would put it on their credit card and pay at the end of the month. https://twitter.com/p_millerd/status/1118071182534660096?s=2...

I expect that many of the people who can best afford an unexpected $400 expense would just put it on their credit card which they pay off every month. After all, might as well get the airline miles at least. Even if they could just write a check.

So the 40% is really misleading. It's more like 80%.

> 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.

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

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...

[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

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

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

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.

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.

Unless you don't mind losing the $20K, talk to a lawyer ASAP, and before you pay.

Also, HR/benefits mistakes happen, and that kind of arrangement with an outsourced company can lead to both individuals and organizations trying to cover their butts when a mistake happens, to a ridiculous degree. (I had paperwork showing I'd paid for and gotten insurance, but the actual insurance company said I didn't have coverage. Fortunately, I didn't get sick or injured, and found out on a routine health appointment. Had I found out the hard way, I could've been stuck with devastating bills and a "pre-existing condition" that could prevent getting insurance coverage in the future (given that ACA was/is under attack). There was such a Kafkaesque and underhanded butt-covering by everyone, I never did even get reimbursed for the insurance I paid for but didn't receive. I had better things to do than to sue.)

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

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.

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.

For this sum, if you have paperwork showing what you should have been covered to, you have grounds for a lawsuit.

You can negotiate with the healthcare provider. They will happily cut that down a lot if you are willing to drop a lump of cash.

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.)

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?

Or more relevant to HN, a new phone or tablet. And paying $15 surcharges to get lunch delivered. And multiple entertainment services at $10-20/month.

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.

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.

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."

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?

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.

A lot of people are living paycheck to paycheck. Money in == money out, both by necessity and by increasing spending whenever they have increased income. Some people are deep in CC or Student debt, so extra money goes there, some are spending beyond their means (or right up to their means).

Basically, people don't or can't save (much). So any unexpected expenses need to be covered by income.

The problem isn't income, the problem is spending. People in general want more than they have. There is always another toy, A bigger widget, a better model next year.

>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...

> 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...

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.

Low unemployment rate only improves savings if incomes rise as a result of the increased demand for labor. Though wages have ticked up a little bit, we haven't seen the expected rise in incomes that would be expected for our historically low unemployment rate. I'm not sure anyone knows exactly why, but I've been led to understand that the rosy picture painted by the unemployment rate is undercut by the copious amounts of underemployed americans, as well as leftovers from the great recessions that never re-entered the workforce. There is also the current trends of automating the workforce, and the gig economy, both of which suppress the value of labor.

Perhaps instead the employment rate doesn't tell the whole story?

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.

“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...”

Well if you don't have the money to pay it off right away, and it's on your credit card, then how are you supposed to find even more money to pay that off? What if another surprise bill came at that time? You'd be going down the debt spiral.

That’s why it’s inconvenient. I mean the average cc rate is 20% so every month you can’t pay off the $400 means you’re paying $70 in interest. It sucks but I don’t know how much of a struggle that is.

Carrying a balance isn't the struggle, it's paying off the accumulation that is.

> 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.

>> 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 :)

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?

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.

18% is low. Most are closer to 21-24%

Yes, it’s not fun. I agree. My point is that the article is not precise to be useful. If the article was about how 40% of Americans go through what you describe, that would make sense.

Right now it includes the scenario you describe as well as “charged it this month, waited to pay it off next month.” How many Americans do either is useful for knowing the extent of impact.

It'd be less than $150 to have the tooth extracted.

Damn right. Frickin' entitled americans think they have a right to fix their body parts when the obvious solution is to just yank it out/chop it off to save cash.

All fine and well if that's a tooth that's in the back. If it's a front tooth, you are going to have to then pay to get a fake one to put in its place. Having holes in your mouth will mess up your teeth even more in the long term.

Many people haven't been taught the difference between spending money you don't have and spending money you won't have. The former is dangerous, the latter is nigh-suicidal.

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