Forty-one percent of American households say they would have trouble paying an unexpected $400 expense, according to the Federal Reserve Board's 2017 Survey of Household Economics and Decisionmaking (SHED). What accounts for this astonishingly high figure? That's what Anqi Chen of the Center for Retirement Research at Boston College wanted to find out. To determine the reasons for the financial fragility of such a large swath of the population, Chen analyzed 2017 SHED data and the 2016 Survey of Consumer Finances.
Low-income households are most likely to say they could not pay for an unexpected $400 expense. A substantial share of higher-income households also say they could not do it...
Household could not pay for an unexpected $400 expense, by household income
Under $25,000: 72%
$25,000 to $49,999: 59%
$50,000 to $74,999: 40%
$75,000 to $99,999: 34%
$100,000 or more: 17%
Chen found several reasons for this widespread financial fragility. About half of those who say they could not pay an unexpected $400 expense literally do not have $400 in their checking or savings accounts. The question is, why do those who have the money in their bank accounts feel so fragile? Because their funds are needed to pay down debt, says Chen. Student loans, installment loans, and oversized mortgages prevent many households with solidly middle-class incomes from accumulating a rainy day fund that could cover an unexpected $400 expense.
Source: Center for Retirement Research, Why Are So Many Households Unable to Cover a $400 Unexpected Expense?
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