Majority of Adults in U.S. Unable to Afford $1,000 Emergency Expense
A recent Bankrate report found that 57 percent of U.S. adults could not afford a $1,000 emergency expense. When asked how they would pay for an emergency expense, only 43 percent said they would use savings whereas 25 percent would use a credit card and pay it off over time, 12 percent would cut spending, 11 percent would borrow from family and friends, 4 percent would take out a personal loan, and 4 percent said something else.
“With 1-in-4 Americans telling us they’d react to a large emergency expense by using a credit card, their timing couldn’t be worse,” said Mark Hamrick, Bankrate senior economic analyst. “On average, credit card interest rates are the highest we’ve seen and are slated to go higher as the Federal Reserve continues to hike. Under the best of circumstances, this debt should be paid before costly interest charges hit the account.”
The study also found that nearly three quarters (74 percent) of U.S. adults reported saving less this year because of inflation, increased interest rates, and/or a change in income or employment. 68 percent said they are saving less due to inflation, up from 49 percent just last year. Those who reported negative impacts on their savings are primarily those with lower incomes and less education.
The report found that older Americans and those earning more money are more likely to use their savings for an emergency. 71 percent of adults with a household income of $100,000 or more would use their savings, as well as 56 percent of baby boomers, compared to 37 percent of Gen X, 41 percent of millennials, and 31 percent of Gen Z.
When asked how an unexpected loss in employment or income would affect their finances, 68 percent said they are worried they wouldn’t be able to cover living expenses for a month, including 45 percent who are very worried and 23 percent who are somewhat worried, compared to just 32 percent who are not worried at all.
“For those who have been or are planning to sock money away for emergencies, it truly pays to shop around for the best rates, as high-yield savings yields are the highest since 2008,” Hamrick said. “This is a situation where having more money to work with, including higher yielding returns, can make an important difference.