A mere 44% of Americans have enough savings to cover an unplanned expense of $1,000, according to a Bankrate.com survey. The number means that the majority of Americans would need to use other methods, aside from their personal savings, to pay for an emergency expense.
While the findings may be surprising to some, they represent an improvement compared to last year, when 39% said they have enough money saved for a $1,000 emergency expense. Greg McBride, chief financial analyst for Bankrate.com, says, “While the ability to cover an unplanned $1,000 expense from savings is the best we’ve seen over the past eight years, the majority of Americans still cannot afford to do so,” further representing the struggles Americans face in their personal finances.
Reliance on Borrowing Is High
McBride adds, “The reliance on borrowing is still high, with more than one-third of households having to turn to a credit card, personal loan, or family and friends in the face of unplanned expenses.”
Bankrate says 20% and 15% pay for sudden expenses on their credit card, or cut back on other expenses. A further 10% borrow money from family or friends.
The survey also found that age barely mattered in ability to cover an unplanned expense, with 49% of the Silent Generation (age 77 and up) being the top cohort, followed closely by 48% of Gen X (ages 42-57) and 44% of Baby Boomers (ages 58-76).
“Experts recommend that people in most age groups have an emergency fund that covers three to six months’ worth of your expenses. Those who are retired and receiving a considerable amount from investment accounts should consider saving more,” per Bankrate.com.
Inflation Putting a Dent on Savings
With the highest inflation increase seen in 40 years in the U.S., as well as record numbers of Americans in debt, saving has become even harder for many Americans.
Just under half of those surveyed, 49%, said the accelerating inflation increase taking place under President Biden has caused them “to save less for an unplanned expense,” whereas 33% said inflation is not hampering their saving.
But a significant number of Millennials and Generation X, 54% and 53% respectively, say inflation is causing them to save less for unplanned expenses.
“A telling indicator of the impact inflation is having on household finances is that nearly half of Americans say inflation is holding back their ability to save for unplanned expenses, while just 1 in 6 say it is enabling them to save more,” McBride says. “That savings is sorely needed, with just 44 percent of households able to cover an unplanned $1,000 expense from savings.”
Just Trying to Make Household Bills
Furthermore, McBride tells Newsmax Finance that while inflation is a currently a key factor, people failing to save for unplanned expenses is not new. “Americans have long under saved for emergencies,” McBride says. “In previous polls, Americans predominantly cite being hemmed in by household expenses as the biggest reason. The current inflation situation is certainly compounding this.”
A 2019 finding from the Federal Reserve showed that “nearly 40% of Americans struggle to cover an unexpected $400 expense,” per CBS News, another stark example of both Americans’ financial difficulties and failure to plan for unexpected expenses.
Finally, McBride notes that younger Americans are particularly hard hit. Coupled with the finding that 54% of Millennials saying inflation “is causing them to save less for unplanned expenses,” McBride says, “younger households were hit by joblessness and income disruption during the pandemic to a larger extent than their older counterparts. Even those that are good savers saw their savings take a hit or get wiped out completely by a period of unemployment or reduced work hours. It takes time to rebuild that.”
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