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...
To me that includes being able to sell or borrow something, but clearly the interpretation varies.
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.
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.
> 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.
Using debt to save money depends on starting with a reasonable amount of money.
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.)
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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 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?
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.
* Golden Rule
* Budgeting
(I think we know the reasons why parents don't teach this.)
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.
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.
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.
Definitely agree with this! And yes, The Golden Rule and Budgeting should be taught in our schools.
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.
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.
Depending where you are in the credit cycle, it could be ~30-50 days before incurring any interest.
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.