Most Americans can't afford a $1,000 expense

[c1ue]

And while the $1,000 number is from a less well known source, there's a $2,000 number with almost similar (lack of) affordability from the NBER - yes, the recession confirmers.

http://money.cnn.com/2011/08/10/pf/e....htm?hpt=hp_t2

When the unexpected strikes, most Americans aren't prepared to pay for it. A majority, or 64%, of Americans don't have enough cash on hand to handle a $1,000 emergency expense, according to a survey by the National Foundation for Credit Counseling, or NFCC, released on Wednesday.

Only 36% said they would tap their rainy day funds for an emergency. The rest of the 2,700 people polled said that they would have to go to other extremes to cover an unexpected expense, such as borrowing money or taking out a cash advance on a credit card.

"It's alarming," said Gail Cunningham, a spokeswoman for the Washington, DC-based non-profit. "For consumers who live paycheck to paycheck -- having spent tomorrow's money -- an unplanned expense can truly put them in financial distress," she noted.

That's the case for Allyson Curtis, 35. "I think about it every day," she said.

Curtis was unemployed for only three months last year, but in that time she accumulated $5,000 in credit card debt that she's now struggling to pay down. In the case of an emergency, Curtis said she would likely postpone other payments and pile on additional debt.

She is already putting off $450 in dental work and a car inspection due to a crack in her windshield, which will cost $300 to replace, she said.Many respondents, 17%, said they would borrow money from friends or family. Another 17% said they would neglect other financial obligations -- like a credit card bill or mortgage payment -- in order to free up some funds.
Alternatively, 12% of the respondents said they would have to sell or pawn some assets to come up with $1,000 and 9% said they would need to take out a loan. Another 9% said they would get a cash advance from a credit card, according to the NFCC.

Cunningham finds that particularly troubling. Neglecting other debt obligations -- or worse piling on more debt -- "really exacerbates the problem," she said.

An earlier study by the same organization found that 30% of Americans have zero dollars in non-retirement savings. A separate study by the National Bureau of Economic Research found that 50% of Americans would struggle to come up with $2,000 in a pinch.

[Thailandnotes]

Re: Most Americans can't afford a $1,000 expense

I bet the 2,000 dollars pinch is a lot higher percent. During the two months my wife and I spend in the states, more people were willing to lay out or at least hint at their savings. I was blown away. Friends in the early fifties whom I asumed had 20 -50 K, had nothing.

[jpetr48]

Re: Most Americans can't afford a $1,000 expense

I wonder what percentage are leveraged in debt. In other words how much car payments, mortgage etc.

[Guest]

Re: Most Americans can't afford a $1,000 expense

Hopefully it's not that bad. It occurs to me that busy high functioning individuals would be unlikely to answer the phone and participate in a survey such as this. You're more likely to get responses from the unemployed, bored, and other people whose time and privacy are not as valued.

It's bad, but probably not that bad.

[touchring]

Re: Most Americans can't afford a $1,000 expense

I bet the 2,000 dollars pinch is a lot higher percent. During the two months my wife and I spend in the states, more people were willing to lay out or at least hint at their savings. I was blown away. Friends in the early fifties whom I asumed had 20 -50 K, had nothing.

This problem does not only affect the US. You'll be surprised that this is also the case for young people below the age of 35 in China and Singapore. They got no savings. All money is spent in lifestyle goods, cars, and mortgage payments.

Especially for China with the single child policy. Will you bother to save money if you know that you alone stand to inherit all of your parent's apartment, their insurance and savings?

This is the reason why China is doing everything to avoid unemployment. The CCP will collapse if unemployment rises above 8 per cent.

[yourfather]

Re: Most Americans can't afford a $1,000 expense

This problem does not only affect the US. You'll be surprised that this is also the case for young people below the age of 35 in China and Singapore. They got no savings. All money is spent in lifestyle goods, cars, and mortgage payments.

Especially for China with the single child policy. Will you bother to save money if you know that you alone stand to inherit all of your parent's apartment, their insurance and savings?

This is the reason why China is doing everything to avoid unemployment. The CCP will collapse if unemployment rises above 8 per cent.

This is what yF has done about trying to "unemployment" proof his life, after learning a hard lesson.

Wife and I are both 29.

1) No debt, no car repayments
2) Wife has 10K in cash account making 6% interest (we are in Australia, rates are higher)
3) I run all expenses on credit card but the limit is what I have left over after rent so it is cleared almost every month (except when we went on vacation to europe for 4 weeks)
4) All wifes money is saved and not consumed
5) We rent a three bedroom house for $1,000 a month, if we were to buy it would cost $1,500 in interest alone
6) We cook every meal at home
7) Our car is a 1.5 liter compact mitsubishi I bought brand new and will keep for 10 years.


I am very conservative with money. The only thing I wish we spent less on was cell phones and the occasional movie.

My wife is the reason behind this discipline - until I had her in my life I just blew everything.

[DSpencer]

Re: Most Americans can't afford a $1,000 expense

Hopefully it's not that bad. It occurs to me that busy high functioning individuals would be unlikely to answer the phone and participate in a survey such as this. You're more likely to get responses from the unemployed, bored, and other people whose time and privacy are not as valued.

It's bad, but probably not that bad.

I also tend to be skeptical of these kinds of surveys. Unfortunately, my anecdotal experiences are not very encouraging and more in line with this:

Friends in the early fifties whom I asumed had 20 -50 K, had nothing.

I experience similar situations at work. I have employees make 90k+/year (sometimes quite a bit more) who are frequently requesting to cash out vacation, make hardship withdrawals from their 401k, get a pay advance etc.

I can't say for sure that they have no savings, but at the minimum there seems to be a cash flow problem. These are people in their 50's who typically have children who are now adults. They have received raises for the past several years and in many cases are probably making significantly more than they have for the rest of their careers. In my mind they should be saving more than ever and instead it seems to be the reverse.

[c1ue]

Re: Most Americans can't afford a $1,000 expense

This problem does not only affect the US. You'll be surprised that this is also the case for young people below the age of 35 in China and Singapore. They got no savings. All money is spent in lifestyle goods, cars, and mortgage payments.

There is a huge difference between a country with a per capita average income of over $47,000 not having $1000 (2%) or $2000 (4%) vs. a country with a per capita income of $7519 not having $1000 (13%) or $2000 (26%) (China).

As for Singapore, while the per capita income is very high, simultaneously cost of living is very high. I'm sure you could say the same for young couples living in Manhattan.

[Sutter Cane]

Re: Most Americans can't afford a $1,000 expense

The lack of universal health care in the US makes having any savings a wasted effort if you encounter any health problems whatsoever (which most of us undoubtedly will).

A short stay in the hospital will wipe out the average person's lifetime savings in short order, even if they are one of the lucky few with health insurance. After seeing this happen to enough friends and family members, it makes it hard to maintain the discipline to save diligently and live frugally when you know your savings will be wiped out after one health emergency. Why bother, if you are going to have to declare bankruptcy anyway when you face an inevitable bout of ill health?

[dropthatcash]

Re: Most Americans can't afford a $1,000 expense

Most people are simple clueless. Drive by your local Taco Bell at 9, 10 or 11 at night and take note of the typical consumers; junk cars, fat and money for smokes. They all whine about the man keeping them down, they frequent paypay loan sharks, buy lotto tickets and they are all broke. None can do the simplest of math such as $10 per night at Taco Bell/Wendys/McDonalds/The bar/Casino for 1 year is $3650. At 10 years $36,500. They don't get it, can't be taught it and would squander a million dollars if given the chance. If I sound jaded it's from wasting too much time trying to help the morons of the world.

[touchring]

Re: Most Americans can't afford a $1,000 expense

There is a huge difference between a country with a per capita average income of over $47,000 not having $1000 (2%) or $2000 (4%) vs. a country with a per capita income of $7519 not having $1000 (13%) or $2000 (26%) (China).

As for Singapore, while the per capita income is very high, simultaneously cost of living is very high. I'm sure you could say the same for young couples living in Manhattan.

I seldom look at GDP figures because if you've been to major Chinese cities, you will know that they are not relevant. The propensity to save does not rise when you earn more and does not fall when you earn less. The Chinese in their 20s and 30s today may earn 10 times of what their farmer parents did, but their aged parents may probably have $20,000 in savings while they owe credit card companies and 30 year bank mortgages.

This talk that Chinese saves more is a media created fallacy. Go to Shanghai, Beijing, look at all the crappy stuff they have built and the crappy things people are buying. Building is easy, anyone thought about the cost of maintenance? Savings?

The Hebei province in which Beijing is located is due for a Richter scale 8 earthquake, can't imagine how many buildings will collapse if that really comes. It will make the Japanese Tsunami and probably even the Tang Shan earthquake look very trivial. The Chinese authorities know that but they can't do much and neither will they sound any alarm.

[don]

Re: Most Americans can't afford a $1,000 expense

Who's gonna save can be hard to figure.

We raised three kids, very close in age. All are long-term employed (so far) with incomes ranging from $40k to $100k. They all pay their own way, have children, are responsible. Reserves vary considerably, from the $1-2K cash struggle to $5-10k to a significant amount. The latter is the $100k girl, not because of her income (a unquestionably useful tool) but her personality. She was always a saver and won every family game that had money in it, starting at the age of 6.

We raised them all the same. It's a bit of a crap shoot.

[Slimprofits]

Re: Most Americans can't afford a $1,000 expense

front page of the Sunday Boston Globe:

http://www.boston.com/business/artic...ly_get_poorer/

While family incomes across Massachusetts have generally risen over the past three decades, the state’s poorest residents have fallen behind. And nowhere have they fallen farther than here in Western Massachusetts, where families in the bottom fifth of the income scale have seen inflation-adjusted earnings drop below 1979 levels, according to a new study by University of Massachusetts economists.

[..]

For example, the inflation-adjusted median income of affluent families in Greater Boston has grown 54 percent since 1979, to $230,000 from $150,000 a year, largely due to high-paying technology jobs.

In Berkshire County and the Pioneer Valley, where decades of plant closings have left hollowed-out economies, the inflation-adjusted median income of the poorest families fell 24 percent, from $21,000 a year in 1979 to $16,000 - on par with some of the most impoverished parts of Appalachia

[tim916]

Re: Most Americans can't afford a $1,000 expense

Hey, I eat Taco Bell occasionally and I'm not a (total) moron.

Is the solution really for people to stop spending money on food and entertainment? Don't the people who work at Taco Bell really need those jobs?

Stop going to the bar? Ok what happens to the bar staff and the guys who drive the trucks who deliver the booze? Or the guys working at the bottling plant? I'm sick of hearing that spending is the problem. It just doesn't make sense to me. My job depends on people spending money on our products, and yours probably does, too.

[rjwjr]

Re: Most Americans can't afford a $1,000 expense

Hey, I eat Taco Bell occasionally and I'm not a (total) moron.

Is the solution really for people to stop spending money on food and entertainment? Don't the people who work at Taco Bell really need those jobs?

Stop going to the bar? Ok what happens to the bar staff and the guys who drive the trucks who deliver the booze? Or the guys working at the bottling plant? I'm sick of hearing that spending is the problem. It just doesn't make sense to me. My job depends on people spending money on our products, and yours probably does, too.

Consumption is not the problem nor the point he was making, tim. Overconsumption (living beyond one's means) is the problem as is mal-consumption (buying cigarettes instead of paying insurance premiums) , both of which contribute to no savings; immediately or eventually.