Why so many households find it difficult to cover a $400 emergency 

    Despite a strong economic recovery, about 40% of households in 2017 still said they would have trouble paying for a $400 unexpected expense, MarketWatch reports. 

    A recent study from the Center for Retirement Research uses data from two Federal Reserve surveys—the “Survey of Household Economics and Decisionmaking” and the “Survey of Consumer Finances”—to understand why so many households say they are unable to come up with $400.

    Every year since 2013, the SHED asks over 12,000 households about subjective and objective measures of their financial well-being. Households that say they would need to “borrow, sell, stop paying other bills, or just would not be able to pay” a $400 emergency expense are the 41% deemed unable to cover such an expense. Even 17% of households with more than $100,000 in income say that they would have trouble meeting such an expense.

    The SCF, based on a household’s actual resources, tells a different story. It finds that only some 20% of households have less than $400 in their checking/savings accounts, and this group is much more concentrated among lower-income households. 

    The combined results of the surveys show that many households are living on tight budgets because they either have outstanding debts or a lower income in general. Many of these households may have enough liquid assets to cover a modest emergency expense but they also have mortgages, student loans, and/or other installment loans. These loan payments, which constrain their household budgets, could explain why so many middle- and higher-income households do not have precautionary savings. Read the full story. 

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