The National Bureau of Economic Research recently released a paper that looked at the “financial fragility” of households. They determined fragility as the inability to come up with $2,000 in 30 days or less.
Approximately one quarter of Americans report that they would certainly not be able to come up with such funds, and an additional 19% would do so by relying at least in part on pawning or selling possessions or taking payday loans.
The survey asked a simple question, “If you were to face a $2,000 unexpected expense in the next month, how would you get the funds you need?” In the U.S., 24.9% of respondents reported being certainly able, 25.1% probably able, 22.2% probably unable and 27.9% certainly unable. The $2,000 figure “reflects the order of magnitude of the cost of an unanticipated major car repair, a large copayment on a medical expense, legal expenses, or a home repair,” the authors write. On a more concrete basis, the authors cite $2,000 as the cost of an auto transmission replacement and research that reported low-income families claim to need about $1,500 in savings for emergencies.
With more Americans living paycheck-to-paycheck it can be no surprise why it becomes hard and harder for them to recover from a financial surprise. Without reserves to call upon, the arrival of a $2,000 financial surprise is enough to break the back of the household budget.
I can’t emphasize enough the importance of a regular savings account or emergency fund in to save money in even while you may be trying to dig yourself out of debt.Half of Americans Tapped Out and Broke. Anyone Surprised? by Steve Rhode