July 18, 2019
Why Americans Can’t Come Up with $400
In Beavercreek, Ohio, the cleanup from a recent tornado has begun. But debris is still piled high on many residents’ lawns.
“What we’re seeing following this tornado is people not having enough cash to pay upfront for house debris removal even though insurance companies will reimburse them,” former mayor Brian Jarvis said on Twitter. The debris cleanup comes on top of other costs like temporary housing in this city east of Dayton.
Much was made recently of a survey in which four of every 10 American families said they could not cover an unexpected $400 expense. But no one explained why. New research has some answers.
Even when people have $400 in their checking or savings accounts, they don’t always feel like they have the money to spend. That’s because they may have already committed the funds to paying off their credit cards, according to an analysis by Anqi Chen at the Center for Retirement Research.
This problem isn’t confined to low- and middle-income people either: 17 percent of households earning more than $100,000 would have to scramble to find the extra $400.
The study uncovered what cash-strapped families have in common.
First, consider the families who have $400 but don’t feel they can spare it. They’re often burdened by mortgages, credit card debts, or student loans. Although they feel broke, this group, in fact, includes high- and middle-income households with financial advantages, such as positive net worth and a retirement plan at work.
Second, turning to the families who do not have $400, much of this group is disadvantaged by low incomes and low education levels. Some are borrowers with negative net worth – their incomes tend to be on the low side too. A few are homeowners, who may be having difficulty paying the mortgage, usually the largest household expense.
This study gives us a better understanding of why too many Americans aren’t able to look past today to make sure they’re saved enough money to retire.
Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on our blog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here. This blog is supported by the Center for Retirement Research at Boston College.