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Only 39% of Americans can cover a $1,000 emergency expense: RPT

Greg McBride, Chief Financial Analyst Bankrate.com, joins Yahoo Finance's Kristin Myers to break down Bankrate.com's new report highlighting American's personal finance struggles.

Video Transcript


KRISTIN MYERS: A new survey from Bankrate has found that just 39% of Americans could afford to pay for an emergency or surprise bill totaling $1,000 or more. We have Greg McBride, chief financial analyst at Bankrate.com, here with us for more.

Greg, it's always great chatting with you. This is a little bit of a depressing headline, I should say. I want to start here-- you know, we hear a lot that consumer balance sheets right now are strongest. That people saved quite a bit of money throughout this pandemic. I'm wondering how you reconcile that with the survey results, which is showing that a majority of folks can't even afford to pay for an emergency if it's $1,000 or more.

GREG MCBRIDE: Well, we hear a lot about this K-shaped consumer recovery, Kristin. And I think the results here really reflect that. You know, the numbers are down slightly from last year. Maybe not as much as we would have thought at first blush.

Reflecting the fact that, yes, while it was devastating to the finances of those that lost jobs or suffered income disruptions, at the same time, there are millions of Americans whose household balance sheets, as you noted, are stronger now than they were a year ago, between stimulus checks, maybe extended unemployment benefits.

Money that got put away in savings-- they have a little bit more put away. Net, net, things did not deteriorate in an appreciable way relative to where we were this time last year.

KRISTIN MYERS: So those folks that can't afford those emergency bills, how would they plan on handling it if one landed on their doorstep? Is this turning to, I think, credit cards? It would probably be one of the first things that they would reach for. What did your survey find?

GREG MCBRIDE: Yeah, borrowing really did kind of bubble up as the most common way that people would do that. Credit cards did top the list. Borrowing from family members or friends. Some even say taking a personal loan.

Now one area we did see an increase relative to a year ago-- more people now said that they would cut back on spending on other things in order to cover that expense, than we've seen in previous years. I think this too, a vestige of 2020, where we had this forced curtailing of spending in some categories that I think has created an environment where people are saying, well, OK, I guess if I had to I could cut back on this, or I could do without this for a while.

KRISTIN MYERS: Now, I'm wondering if this survey's results really point to you, or really maybe underscore the real need for more than those $600 stimulus checks. President-elect Biden actually tweeting out a little bit earlier that $600 isn't enough. We need $2,000 stimulus checks. That's a measure that Congress is considering. Do you think, as well, that perhaps Americans need more support, perhaps continued support throughout this pandemic?

GREG MCBRIDE: Americans need more emergency savings. And we've seen that when the economy was good. We certainly see that coming out of this very deep recession. So, yes, the stimulus money has definitely helped sustain households and small businesses.

The fact that households and businesses went as long without that as they did-- who knows how many that pushed over the edge. I think more would certainly offer the opportunity for a lot of households to put away a little bit of savings or pad what they already have. But it's not going to be a panacea for either the savings equation or the type of spending that we need to reflate the economy.

KRISTIN MYERS: So you actually just touched on it a little bit, Greg. I want to ask you about that. Because what I did find interesting in this survey is that, while I was surprised by that 39% number being able to handle an emergency, it's kind of in line with numbers that we've been seeing every year, since you know, back since 2014. So why aren't we seeing those numbers increase? That more people are able to afford that emergency, especially given the economic strength of 2019 and even into the start of 2020.

GREG MCBRIDE: Yeah, throughout that decade-long economic expansion, we didn't see the needle move very much in terms of people being able to stockpile more savings, more people being able to afford that unplanned expense. Stagnant incomes, a large part of that. That was a big obstacle for many to being able to pad that savings.

And then of course, the recession comes along, and it puts a dent in the savings situation of those that are most likely to be able to least support it, the young and the lower-income households.

KRISTIN MYERS: I wanted to ask you, Greg. I have about 30 seconds left here with you. How does age play into this? Are younger folks doing better or worse?

GREG MCBRIDE: The millennials in particular are less likely to have that emergency savings, more likely to do borrowing to cover it. But more optimistic that their financial situation is going to improve over the next 12 months.

KRISTIN MYERS: All right, Greg McBride, chief financial analyst at Bankrate.com. Thank you so much for breaking down all of those survey results with us.

GREG MCBRIDE: Thanks, Kristin.