Apparently, almost half of all Americans would have serious trouble paying for a sudden, unexpected $2,000 expense.
This is the finding from a recent study that was profiled in a recent Wall Street Journal article that suggested that nearly half of Americans are what they’re calling “financially fragile”. The article, which links to a paper that serves as the source for the topic, reveals that many people just don’t have the ability to deal with unexpected costs and would have real problems handling such a situation.
The question being asked centered on the ability to get $2,000 in the next month in order to cover an unexpected expense. All told, almost 50% of the surveyed respondents indicated problems, in that that they would either be:
- ‘probably unable’ to get the money (22.2%), or
- ‘certainly unable’ to get the money (27.9%)
The remainder was either ‘certainly able’ or ‘probably able’
The article goes on to describe that when probed about methods to get funds to pay, many of those who at least might be able to pay (thus excluding the ‘certainly’ unable to pay group noted above) indicated that they would have to resort to suboptimal tactics such as pawning possessions, getting help from family or friends, borrowing money, etc. This is to the tune of over 18% of the total – again, in addition to the 27.9% that would be certainly unable to get the $2,000 within a month.
Wow.
What a stressful life that must be, and I’m glad I’m not in that position and hope you aren’t either.
The thing is, these so-called ‘unexpected’ costs aren’t really unexpected at all. Things most likely will happen that not be according to optimistic plans. It’s just the way it is. Your car may need major repairs when you least expected it, your roof may need work, you may have an unexpected medical bill, and so on. Stuff happens, so it’s best to get a better handle on what’s truly unexpected and what’s not, and also to plan for the genuinely unforeseen events.
I suspect that many people do have very genuine, legitimate reasons for being in financial distress – and have real difficulties getting themselves in a better place. I have compassion for those of you in such a position.
For many others, I wonder if it’s a matter once again of not being able to discern wants from needs when spending money and organizing their financial lives, so that they just can’t pay for such expenses that can and will come up.
Having savings of even such a basic level of $2,000 isn’t a want, it’s a need for adults in this country. Yet most people couldn’t handle it. Scary stuff indeed.
Personally, if something like that came up, I’d pull it from my savings account. Not happily, but that’s why the savings are there – for situations such as this. Things happen, and it’s best to plan accordingly. Now, if an expense got a fair amount higher, I would think about using emergency funds. But again, it’s there because we all need one. I paid the price by saving for years and ‘doing without’ so I could protect myself to a reasonable degree in case of emergency.
What about you?
If you were hit with an unexpended $2,000 expense that was coming due within a month, how would you rate your ability to pay it – Certainly Able, Probably Able, Probably Unable, or Certainly Unable?
If you answered one of the first three choices, how would you get the money?
We would pull from savings, but like you said, not happily.
This reminds of a conversation I had once with an Asian friend on home buying. He was recounting a conversation about a mutual colleague who had just purchased a house, by some standards an average $200,000 single family residence. My friend was amazed why such a person with a professional degree and a good job wouldn’t have the savings to just pay cash for the house, instead of “borrowing” the money. He said “borrowing” like it was a dirty word.
101 Centavos – You know, that’s interesting how “borrowing” was stated by your friend as if it’s a dirty word. Borrowing does make one a servant to the lender in many cases, so from a personal finance standpoint it’s not something that’s a cause for people to get excited….unless you’re the lender:)
I certainly wouldn’t like it, but would be able to pay for an unexpected expense by moving money from one account to another. I am surprised at the 50% figure but not really considering the median income for the US is about $46,000. Knowing many live paycheck to paycheck and the official unemployment figure is almost 9%, I can see that the 50% figure makes sense. Too bad it is like this.
cashflowmatra – I wouldn’t like it either, and I agree that it’s too bad that it’s like this. I would be able to pay it as well – despite not liking it.
I would be certainly able to pay – that is the purpose of an emergency fund. Furthermore, we could probably make up the difference in one month by cutting back on expenses such as dining out.
Robert – yes, emergency funds are there for truly unexpected expenses. It’s important to have funds for these types of expenses – unexpected ones that is – as things can and do happen.
I just had to cover an unexpected event to the tune of $1,000 and I thank God that I was able to do it. $2,000 would be pushing it, but I’d rob from Peter to pay that Paul if I had to. It’s tough when you do live paycheck-to-paycheck but that’s what an emergency fund is for, right?
Yes I am Cheap – agreed, that’s why we save the money in the first place, for “unexpected” situations!
We would be able to pull from savings to pay. It is scary that 50% wouldn’t be able to. I am sure there are many people who just don’t make enough, but there are also those who are routinely making poor decisions with their money.
Thanks for an eye opening post.
Melissa – I agree with you on both counts: some make poor decisions, but many just don’t make enough money. Which is sad and unfortunate.
That’s a surprising result to me. I think everyone I know wouldn’t have any problem with a $2,000 unexpected expense. That’s not a huge amount of money and everyone should have at least that much in the bank. It’s tough living paycheck to paycheck.
I tend to agree with RB40. $2000 should be manageable considering $50K is average annual salary.
MoneyCone – Should be manageable for a lot of people, and is for me for sure. That said, it’s clear that there are a lot of people really stuggling out there!
retirebyforty – well, it seems that way to many folks like us, but there are many people without education or who are smart people just really down on luck. Bad things can happen to well meaning people. So, I can believe that some people can’t swing $2,000. I can totally believe it. But 50% of the people out there? That’s eye opening for sure!
This morning I followed a link a friend had posted to an article on Cracked.com about being poor. Cracked.com is a usually a humor site, but the author of this article was writing about a serious subject (albeit in a rather NSFW way). The “Five Things Nobody Tells You About Being Poor” were essentially a rant against how banking institutions and lenders really make it hard to get ahead, and the author made points I think many of us are familiar with. I’m sure someone like this would have to answer he is Certainly Unable to come up with $2,000 for an emergency. I had some mixed reactions to the article, quite frankly. Yes, it’s hard for many not to live paycheck to paycheck, but…why didn’t think guy look into getting a roommate to save a few dollars every month? Why not look at car-pooling options? Etc, etc.
Anyway, I can say I am Certainly Able to come up with an extra $2k for an emergency because I have an emergency account. And I spend less than I earn every month, too, because I chose to do so.
I’m not surprised by this statistic, but it is unfortunate. A lot of my friends are living pay check to pay check, and aren’t saving any money.
I would pull the money out from my emergency savings account- it’s so important to have, because having to pull money out of my investment accounts or other “locked in” type investments would be pretty terrible.
I keep $2000 + in my chequing account to avoid fees, so I suppose I could just use that as well if I needed to.
We currently have an emergency fund that we are continuously adding to that would cover an unexpected $2000 event. The question though would be if it qualified as an emergency.
I would say the real number is closer to 80% that people CAN comfortably cover a $2,000 expense. The media always tries to make things worse than it seems.
I’m actually in that situation more often than I care to admit. We have one month’s expenses in savings during the school year, so it just gets pulled out.
Oh, also, I’ve been wanting to mention that I saw that paper presented at the big conference a year and a half ago. I’m surprised it’s taken this long for the media to notice!
Certainly we would be able to cover it, and have in the past. Again, that is why you have an emergency fund.
What we don’t want to have to cover is someone else’s $2000 emergency. How do you handle family requests for emergency money?
I’d be okay. We keep 2k as padding in our checking accounts so we have immediate access to it with a swipe of our debit card… and almost 11k as our emergency fund.
We’d be fine and with 2 fixer upper houses a $2000 K “unexpected” expense is actually a pretty regular occurrence. Luckily we’ve fixed one of the houses almost completely, so it’s just the other one that’s the money pit.
I never had a whole lot of money til my mid 30’s though. It took quite a while to build up a buffer. I don’t know how people manage to do it when they have children in their early 20’s or younger.
huh, i’m not the ‘average’ amerikan, i suppose. i already have that 2k unexpected expense and scrambling to make money to pay for it. i get a disability cheque (it’s peanuts and it’s even less after paying off other bills), i can’t find work (i used to write and code for a living but those jobs are taken up now by folks with degrees more recent. i cant afford more schooling to update my skills) and my rent’s 2 months overdue. i don’t have family to rely on and i’m getting hammered by collectors and lawyers wanting to get paid for waaaay overdue hospital bills that i hadn’t paid off yet. >__< so how does one make money? it's damn near impossible, i know for sure!!!