Over the last few months or so, you might have heard of the unaffordable, $400 emergency, especially from politicians and the media. The source of that information is the Board of Governors of the Federal Reserve System (The Fed). According to their Report on the Economic Well-Being of U.S. Households in 2017, “four in 10 adults in 2017 would either borrow, sell something, or not be able pay if faced with a $400 emergency expense.” Another alarming finding is “one in five adults cannot cover their current month’s bills, and one in four skipped a medical treatment in the past year due to an inability to pay.”

Likewise, a survey conducted by GOBankingRates, an organization that provides information and research on a variety of financial issues, found more than half of Americans have less than $1,000 in savings.

These reports highlight how, even in today’s booming economy, many Americans live paycheck-to-paycheck and cannot afford small, unforeseen emergency expenses such as car repairs and medical care.

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Economic well-being of U.S. households

The Fed’s report on the economic well-being of U.S. households is based on their annual Survey of Household Economics and Decisionmaking (SHED). Their report provides updates in nine areas of household finances including: (1) economic well-being; (2) income; (3) employment; (4) dealing with unexpected expenses; (5) banking and credit; (6) housing and neighborhoods; (7) higher education; (8) student loans; and (9) retirement. The chapter on unexpected expenses provides insight into the financial instability faced by many U.S. households. The report says, “relatively small, unexpected expenses, such as a car repair or replacing a broken appliance, can be a hardship for many families without savings.”

As shown in the chart, the portion of adults who cannot afford an unexpected, $400 expense has declined over the last five years. Still, more than 40 percent of all U.S. adults say they have neither enough cash nor enough savings to pay for such an expense. Instead, they resort to other payment options such as carrying unpaid balances on their credit cards or borrowing from friends and family members. Others would simply be unable to pay at all. Sadly, some Americans find medical careunaffordable. According to The Fed’s report, “during 2017, over one-fifth of adults had major, unexpected medical bills to pay, with a median expense of $1,200. Among those with medical expenses, 37 percent have unpaid debt from those bills. In addition to the financial strain of additional debt, over one-quarter of adults went without some form of medical care due to an inability to pay.”

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GOBankingRates savings survey

GOBankingRates’ survey of savings provides similar insight into the financial condition of U.S. households. According to TD Bank’s Jason Thacker, the GOBankingRates’ surveys show “a majority of adults don’t even have $1,000 in a savings account.” Like The Fed survey, the GOBankingRates’ survey shows some, limited improvement has occurred in U.S. households’ finances over the last five years. As Mr. Thacker notes, “the data indicates that more people are actually saving something; however, a third of the population is living without any savings, which is concerning given life surprises.” The GOBankingRates’ survey also lists several reasons for the lack savings including: (1) high cost of living (rent, food, utilities); (2) low salary; (3) debt; (4) no budget; (5) spending on non-essential (eating out, luxuries); and (5) no savings account.

The “gig economy” is another, often-cited reason for the lack of savings. The Fed’s report notes“gig work covers three types of non-traditional activities: offline service activities, such as child care or house cleaning; offline sales, such as selling items at flea markets or thrift stores; and online services or sales, such as driving using a ride-sharing app or selling items online.” Gig work is often a temporary and unreliable source of income. For some, gig work simply supplements their income. For others, gig work is the cause of their low savings. The Fed’s report says, “to earn extra money is, by far, the most common reason that individuals engage in gig work. Two-fifths of gig workers (12 percent of all adults) are doing these side jobs to supplement income from main jobs, and for an additional 16 percent of gig workers, this is their primary source of income.”

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Many Americans being left behind

Despite the current U.S. economic expansion, which is the longest on record, and despite our current, historically-low unemployment rates, many Americans are being left behind. The inability of many U.S. households to deal with unexpected, financial emergencies reflects the stagnation of low- and middle-income workers’ wages. To many of us, it’s inconceivable that an unexpected, $400 expense could send our finances into disarray. Unfortunately, for others, it’s an everyday reality.