Question of the Day (Updated): What percentage of Americans can not cover a $400 emergency with cash/savings account emergency fund*?
Answer: 37%
*Ways of payment include cash, funds from savings account, or credit card transaction paid off next statement.
Behind the numbers (Federal Reserve Board):
"Relatively small, unexpected expenses, such as a car repair or a modest medical bill, can be a hardship for many families. When faced with a hypothetical expense of $400, 63 percent of adults in 2019 said they would cover it exclusively using cash, savings, or a credit card paid off at the next statement (referred to, altogether, as “cash or it's equivalent”)—a 2 percentage point increase from 2018. In 2013, half of adults would have covered such an expense in this way."
It is important to note that of the 37% who said they did not have an emergency fund prepared to pay for a $400 unexpected expense, only 12% stated they were completely unable to pay for the expense. That being said, those adults who cover the $400 expense from credit cards paid off over time or using a payday loan, line of credit or overdraft will incur additional interest/fees as well, making their financial situation even more difficult.
COVID-19 Update:
"...for adults overall in April, the share who reported they would pay an unexpected $400 emergency expense entirely using cash, savings, or a credit card paid off at the next statement was essentially unchanged from the fall of 2019. Yet those who experienced the loss of a job or work hours were less likely to report they would pay an unexpected $400 expense in these ways."
Questions:
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Are you surprised by this number? Why or why not?
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What are some emergency expenses that could amount to $400?
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How do you think the 37% cover this emergency cost if they don’t have money saved to cover it?
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Your friend says “Why would you want to save money when interest rates that banks pay for savings are so low?” Convince him that saving money is a good idea.
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Your students can play NGPF Arcade Game Spent to experience what it means to live "paycheck to paycheck" and one unexpected expense away from financial difficulties.
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About the Author
Mason Butts
After graduating from UCLA with a Master's in Education, Mason spent 5 years as a science educator in a South Los Angeles public high school. He is committed to supporting the holistic growth of all students and empowering them to live a life of relational, academic, and financial success. Now settled in the Bay Area, Mason enjoys facilitating professional developments and partnering with educators as they prepare students for a bright financial future. When Mason is not building curriculum or planning a training, he can be found cycling, trying new foods, and exploring the outdoors.
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