It is a myth that a large share of people can’t cover a $400 emergency expense(bloomberg.com)
bloomberg.com
It is a myth that a large share of people can’t cover a $400 emergency expense
https://www.bloomberg.com/opinion/articles/2019-06-04/the-400-emergency-expense-story-is-wrong
37 comments
This seems to hang on the definition of "come up with $400".
To me that includes being able to sell or borrow something, but clearly the interpretation varies.
To me that includes being able to sell or borrow something, but clearly the interpretation varies.
Many people have no cash, despite not being poor at all. All their money is tied up in assets, and they borrow for living expenses.
A typical example is someone with a mortgage. His mortgage debt is probably quite a bit higher than his "cash", and so any cash he spends is effectively borrowed from the mortgage company.
This means the answer to the survey question depends on one's frame of reference with regard to how finance works, and so I wouldn't take the results very seriously.
A typical example is someone with a mortgage. His mortgage debt is probably quite a bit higher than his "cash", and so any cash he spends is effectively borrowed from the mortgage company.
This means the answer to the survey question depends on one's frame of reference with regard to how finance works, and so I wouldn't take the results very seriously.
Let's put it another way. Suppose you have a $100,000 mortgage on which you're paying 6% interest. You have a savings account with $2,000 in it that pays 2% interest.
The savings account is costing you 4% per year.
Faced with this, one is better off putting extra cash into paying down the mortgage rather than in a savings account. It puts one in a "cash poor" position, which is not the same as being poor.
The savings account is costing you 4% per year.
Faced with this, one is better off putting extra cash into paying down the mortgage rather than in a savings account. It puts one in a "cash poor" position, which is not the same as being poor.
It seems logical to pay off debts as soon as you can as they're expensive. However, in your example, if I use that $2,000 to pay down (a tiny bit of) my mortgage, I put myself in a dangerous position by not being able to come up with some extra cash in case of emergency. I hope most people with mortgages wouldn't do that.
It all depends on one's risk tolerances are and what other options for obtaining money there are (like being late or underpaying the next mortgage payment).
Keep in mind that taking on a mortgage itself is a risky move, as people found out in 2008.
BTW, even paying a few dollars extra a month on a 30 year mortgage can be surprisingly effective, since nearly all the early payments are interest, not principal.
Keep in mind that taking on a mortgage itself is a risky move, as people found out in 2008.
BTW, even paying a few dollars extra a month on a 30 year mortgage can be surprisingly effective, since nearly all the early payments are interest, not principal.
> Faced with this, one is better off putting extra cash into paying down the mortgage rather than in a savings account.
Cash poor means no easily accessible source of cash, it doesn't refer to the amount of money in your wallet. In your scenario you can access that cash again by jumping onto the banks website (or even visiting the bank) and moving it to your everyday account.
Cash poor means no easily accessible source of cash, it doesn't refer to the amount of money in your wallet. In your scenario you can access that cash again by jumping onto the banks website (or even visiting the bank) and moving it to your everyday account.
I used the term cash poor correctly for the scenario where you used your savings account to buy down the mortgage a bit. It's not quite so easy to increase the mortgage amount, it would depend on what the terms are if you are late or underpay a mortgage payment. If the terms are good, it is one way to recover the cash for an emergency.
Taken literally, they claim that zero would use a debit card, which I find unbelievable. I don't think their universe of responses was well thought out.
Credit cards that offer rewards muddies up the waters here a lot. In that case, it's smarter to put the $400 on the card (and pay it off before paying interest) for the 1.5% discount or the air miles or whatever.
I don't believe it muddies things at all. A sub-quote from wilg's quote:
> 61 percent of adults say they would cover it with cash, savings, _or a credit card paid off at the next statement_
If some of the other 39% pay with a credit card, they are saying they would carry a balance and pay interest.
> 61 percent of adults say they would cover it with cash, savings, _or a credit card paid off at the next statement_
If some of the other 39% pay with a credit card, they are saying they would carry a balance and pay interest.
If you’re on the bottom rung I’m guessing your interest rate is >20%, (the max is apparently 29.9%). Divide by 12 and one month of interest rate is as much, if not more, than 1.5% cash back.
Using debt to save money depends on starting with a reasonable amount of money.
Using debt to save money depends on starting with a reasonable amount of money.
> put the $400 on the card (and pay it off before paying interest)
Depending where you are in the credit cycle, it could be ~30-50 days before incurring any interest.
Depending where you are in the credit cycle, it could be ~30-50 days before incurring any interest.
that "without interest" bit is not dependent on where you are in the cycle: it's 30-50 days from the last point of zero balance.
And of course 30 days without interest is basically "you pay it off in a months time".
I realized that another part of my problem with this column is of course that "using debt" for many people means a payday loan, which seem to be forever relabelling their "service" to avoid being called a 30%/week credit line.
And of course 30 days without interest is basically "you pay it off in a months time".
I realized that another part of my problem with this column is of course that "using debt" for many people means a payday loan, which seem to be forever relabelling their "service" to avoid being called a 30%/week credit line.
When you pay your credit card, it clears the balance on a first in first out basis. So if I spend 1k today then 1k in 30 days time, I only have to pay 1k to clear the statement balance and avoid paying interest.
> You’d frequently have a coworker out of the office who can’t afford to buy a new tire. You’d frequently hear from friends and neighbors who can’t afford to fix their dishwashers.
Ugh. The people who can't come up with $400 to cover an emergency DON'T OWN CARS! That's why you don't hear about them missing work because they couldn't afford a new tire. They take public transit, or they walk because they can't afford bus fare due to an emergency and probably don't talk about it at work due to feeling ashamed (I know, I've been there).
Nor do they own dishwashers...this is some of the worst logic I've ever heard and the author of this article really needs to get out of his bubble. (Can't believe I wasted my last "last free article" on this nonsense.)
Ugh. The people who can't come up with $400 to cover an emergency DON'T OWN CARS! That's why you don't hear about them missing work because they couldn't afford a new tire. They take public transit, or they walk because they can't afford bus fare due to an emergency and probably don't talk about it at work due to feeling ashamed (I know, I've been there).
Nor do they own dishwashers...this is some of the worst logic I've ever heard and the author of this article really needs to get out of his bubble. (Can't believe I wasted my last "last free article" on this nonsense.)
You'd see golf tournaments canceled nearly every season
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This is splitting hairs.
40% of Americans can't come up with $400 but luckily a majority of those know a financial institution that can come up with $400 for them.
Anyone who does not have an emergency $400 is not going to have a great time with an unexpected $400 debt on top of whatever else their debt obligations and expenses are.
Is it so hard to believe that we want to live in a country where pretty much everyone has four hundred measly god damned dollars.
40% of Americans can't come up with $400 but luckily a majority of those know a financial institution that can come up with $400 for them.
Anyone who does not have an emergency $400 is not going to have a great time with an unexpected $400 debt on top of whatever else their debt obligations and expenses are.
Is it so hard to believe that we want to live in a country where pretty much everyone has four hundred measly god damned dollars.
I see it as the neoliberal revolution has failed to deliver and it's apologists are grasping at straws to avoid staring down the damage they have done to the bulk humanity. They'll also say things like well it was bad for people living the Midwest but look at all the Chinese lifted out of poverty. Ignoring that China was too large and coherent to beat into submission like smaller countries were. And thus they didn't inflict those policies on their people.
Of course you want that country. The thing is, the magical panacea of giving out free money to everyone just devalues the money. $1000 Yang Bucks will become the equivalent of $100 now within short order, as prices for things go up.
No yang bucks. Better wages, publicly funded health care, no more war grift without an actually good reason.
I dont understand why Americans lack this magic spell you're talking about, meanwhile Harry Potter is running around Europe handing out healthcare and extending life spans and shit.
Are we just worse at life or something? Maybe we're not good enough?
I dont understand why Americans lack this magic spell you're talking about, meanwhile Harry Potter is running around Europe handing out healthcare and extending life spans and shit.
Are we just worse at life or something? Maybe we're not good enough?
The median household net worth is around 100k.
If your house or whatever is worth 100k more than you owe on it, there's little meaningful sense in which you can't afford a $400 expense.
You've got a liquidity problem, that's all.
If your house or whatever is worth 100k more than you owe on it, there's little meaningful sense in which you can't afford a $400 expense.
You've got a liquidity problem, that's all.
It's beyond me why two classes aren't in school today that SHOULD have been taught by ones parents:
* Golden Rule
* Budgeting
(I think we know the reasons why parents don't teach this.)
* Golden Rule
* Budgeting
(I think we know the reasons why parents don't teach this.)
Why?
Golden rule - it's quite obvious this lesson is lost on today's generation - basically called the "me generation". That's quite clearly the opposite of the golden rule that would have you focus on other people's plight to understand what you're doing wrong.
Budgeting - The notion that half of Americans can't afford a $400 mistake (and I know this is contested and there are credit cards, etc.. but the stat came about from something). In any case, I've met a lot of people that know the "budgeting" exists but don't actually know how to do it or that it would even apply to a person. They think of it as something a business or government does.
Parents don't teach these skills because they don't have them either.
Budgeting - The notion that half of Americans can't afford a $400 mistake (and I know this is contested and there are credit cards, etc.. but the stat came about from something). In any case, I've met a lot of people that know the "budgeting" exists but don't actually know how to do it or that it would even apply to a person. They think of it as something a business or government does.
Parents don't teach these skills because they don't have them either.
> Parents don't teach these skills because they don't have them either.
Definitely agree with this! And yes, The Golden Rule and Budgeting should be taught in our schools.
Definitely agree with this! And yes, The Golden Rule and Budgeting should be taught in our schools.
I am troubled that 12% say they couldn’t cover the $400 expense, and that 14% claim it would stop them from paying some of their other bills. But even if respondents are accurately reporting on their finances, these numbers suggest their situation is relatively uncommon.
That's between 1/7th and 1/8th of adults responding to a survey, some of whom presumably have kids to look after. This guy seems so in love with demonstrating his statistical abilities that it's made him dismissive of ~30-35 million people with severe cash flow problems.
That's between 1/7th and 1/8th of adults responding to a survey, some of whom presumably have kids to look after. This guy seems so in love with demonstrating his statistical abilities that it's made him dismissive of ~30-35 million people with severe cash flow problems.
He isn’t dismissing those people or their hardships, he is saying that the actual number of 40% that many politicians use is disingenuous.
He does dismiss it right there in the same sentence, saying "I’m dubious about [12%] as well." It's obvious that this guy who equates $400 with a new tire is out of touch and I guess he drives a Porsche. Poor Americans drive on the same tires until they explode and then they get another $20 tire. Also rich to equate it with a dishwasher repair bill; only 2/3rds of Americans can look forward to one of those because the other 1/3rd don't even have a dishwasher.
The specialist on American poverty at the AEI is not the kind of person to whom you should turn for factual statements about poverty in America. AEI is an organization founded upon and dedicated to deception.
The specialist on American poverty at the AEI is not the kind of person to whom you should turn for factual statements about poverty in America. AEI is an organization founded upon and dedicated to deception.
He's dismissing it by saying people who can't come up with $400 in cash, can put it on their credit cards or borrow it from friends or family. That's pretty dismissive because the issue is that most people doing even reasonably well should really should be able to pay an emergency $400 bill in cash.
Except for the fact that the sort of person who cannot come up with USD 400 in cash is also the sort of person who has a poor credit rating and no credit cards, and most likely their peer group of friends and family are in exactly the same situation. This is the same sort of tone deaf advice that rich people give about starting your own company - "Why can't these poor people just borrow a few hundred thousand dollars from the family trust fund like I did, they must just be shiftless and lazy" - and should be dismissed in the same way. I suspect the author has neither been short of money in their life, nor met anyone else who was...
Not to mention the fact that a $400 dollar emergency is on the low end. In my experience, most emergencies that have cropped up have been closer to the $700-800 price (Doctor bills (after negotiation), vet bills, temporary relocation, etc).
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I'm not having trouble understanding the article, I'm responding to the specific part that I quoted, and fairly I think.
Here's the direct quote from the original government report [1]:
> If faced with an unexpected expense of $400, 61 percent of adults say they would cover it with cash, savings, or a credit card paid off at the next statement—a modest improvement from the prior year. Similar to the prior year, 27 percent would borrow or sell something to pay for the expense, and 12 percent would not be able to cover the expense at all.
That means 39% of people say they either cannot pay or must sell something or borrow for it. Representing that as "40% of Americans can't come up with $400 in an emergency" is perfectly fair in my view.
[1] https://www.federalreserve.gov/publications/files/2018-repor...