Forty percent of US adults would struggle with $400 expense

Nobody likes an unforeseen expense. But for nearly 40 percent of United States adults, getting an unexpected $400 bill could derail them economically. 

The US Federal Reserve Board on Thursday released its 2018 report on household economic health. While the report showed a slight improvement in financial resilience over the previous year, millions of Americans are still financially fragile.

When asked about their overall economic wellbeing, 75 percent of the 11,000 adults surveyed said they were “doing OK” or “living comfortably”, which was a 12-percent increase since 2013.

Many families report experiencing substantial gains in the last half-decade, consistent with the ongoing US economic expansion.

However, only 61 percent of Americans said they would be able to afford a hypothetical unexpected expense of $400, which they’d pay with cash, savings or a credit card. Another 27 percent said they would need to borrow money or sell an asset, while 12 percent said they would not be able to cover the expense at all.

In 2013, only half of respondents said they would be able to afford the expense, so this year’s survey marks an increase of about 10 percent.

While the survey revealed significant improvements in the last few years, it also showed major financial problems “as well as persistent differences by race, education level, and, in some cases, geography”.

“Nearly 8 in 10 whites reported doing at least OK financially, compared with two-thirds of blacks and Hispanics,” the survey said.

Those with a bachelor’s degree or higher were 23 percent more likely to report at least “doing OK” than those with a high-school degree or less. Two-thirds of graduates with a bachelor’s degree or more said their tuition investment had paid off financially.

Respondents in middle- and upper-income areas were 20 percent more likely to report “overall satisfaction with their community” than those in low- and moderate-income neighbourhoods.

“This report is interesting because it goes beyond some of the basic data that we get around employment and income,” said Valerie Wilson, director of the Program on Race, Ethnicity, and the Economy at the Economic Policy Institute.

“It’s supportive of some of the more empirical data of where the economy is,” Wilson told Al Jazeera. “Self-assessed well-being has improved since 2013…as the economy continues to improve and recover.”

‘Struggle to save’

The Report on the Economic Well-Being of US Households in 2018 was produced by the Board of Governors of the Federal Reserve System, drawing on the Survey of Household Economics and Decisionmaking. It covers a wide range of topics, including employment, income, banking, housing and retirement. 

“We continue to see the growing US economy supporting most American families,” said Federal Reserve Board Governor Michelle W. Bowman.

“At the same time, the survey does find differences across communities, with just over half of those living in rural areas describing their local economy as good or excellent, compared with two-thirds of those living in cities,” Bowman said. “Across the country, many families continue to experience financial distress and struggle to save for retirement and unexpected expenses.”

While most adults are working as much as they want to, some remain unemployed or underemployed. According to the report, African Americans, Hispanics and those with less education are less likely to be satisfied with how much they are working.

Of the 10 percent of adults in the “not working, want work” category, 51 percent said they were not “doing OK” financially, 60 percent said they were in the bottom half of the social ladder, and 27 percent reported to be worse off than their parents.

Many adults report having trouble saving for retirement. One-quarter said they had no retirement savings or pension. Even among those with some savings, many said they lacked investment knowledge or did not feel comfortable making financial decisions.