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

33 35 7 years ago

anigbrowl2• 7 years ago

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.

lukevdp• 7 years ago

He isn’t dismissing those people or their hardships, he is saying that the actual number of 40% that many politicians use is disingenuous.

dv_dt• 7 years ago

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.

anigbrowl2• 7 years ago

I'm not having trouble understanding the article, I'm responding to the specific part that I quoted, and fairly I think.

shereadsthenews• 7 years ago

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.

wilg• 7 years ago

I somehow read this article the first time without realizing it's totally wrong.

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...

leereeves• 7 years ago

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.

thaumaturgy• 7 years ago

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.

perennate• 7 years ago

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.

olliej2• 7 years ago

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.

WalterBright4• 7 years ago

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.

WalterBright4• 7 years ago

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.

masonic• 7 years ago

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.

SerLava3• 7 years ago

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.

Gibbon1• 7 years ago

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.

jackfraser• 7 years ago

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.

SerLava3• 7 years ago

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?

rhacker2• 7 years ago

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.)

loco5niner2• 7 years ago

Why?

rhacker2• 7 years ago

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.

ikeboy• 7 years ago

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.

loudandskittish• 7 years ago

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.)

SerLava3• 7 years ago

You'd see golf tournaments canceled nearly every season

salawat• 7 years ago

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It is a myth that a large share of people can’t cover a $400 emergency expense

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