No doubt, author Neal Gabler [ht: ja] has a pretty nice pot to piss in. But he doesn’t have enough money to pay for a $400 emergency.
That puts him in the same situation as 47 percent of Americans who, according to the most recent Board of Governors of the Federal Reserve System’s “Report on the Economic Well-Being of U.S. Households” (pdf), “say they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money.”
And there’s more:
- Thirty-one percent of respondents report going without some form of medical care in the 12 months before the survey because they could not afford it.
- Just under one-quarter of respondents indicate that they or a family member living with them experienced some form of financial hardship in the year prior to the survey.
It’s not that Gabler and almost half of all Americans are poor. But they’re stretched to (and, for many, beyond) the limit and find themselves in a situation of financial fragility.
They wouldn’t be able to cover an emergency expense costing $400! That’s a car repair, a new appliance, or a minor medical procedure. Or a trip to see an ailing relative.
In fact, according to a recent study by Payoff [ht: db], a financial wellness company, 23 percent of Americans—and 36 percent of Millennials—have experienced “a debilitating degree of stress surrounding their finances, resulting in pathological effects on their thoughts, feelings and behaviors that are most commonly associated with post-traumatic stress disorder.”
What the hell is going on?
Mainstream economists aren’t going to be a lot of help since, as Gabler notes, they’ve mostly ignored the situation.
They had unemployment statistics and income differentials and data on net worth, but none of these captured what was happening in households trying to make a go of it week to week, paycheck to paycheck, expense to expense.
What about psychologists? Here’s the best Brad Klontz, a financial psychologist (whatever that is) can come up with: “If you want to have financial security, it is 100 percent on you.”*
So, we’re back to real people like Gabler:
Life happens, and it happens to cost a lot—sometimes more than we can pay.
Yet even that is not the whole story. Life happens, yes, but shit happens, too—those unexpected expenses that are an unavoidable feature of life. Four-hundred-dollar emergencies are not mere hypotheticals, nor are $2,000 emergencies, nor are … well, pick a number. The fact is that emergencies always arise; they are an intrinsic part of our existence. Financial advisers suggest that we save at least 10 to 15 percent of our income for retirement and against such eventualities. But the primary reason many of us can’t save for a rainy day is that we live in an ongoing storm. Every day, it seems, there is some new, unanticipated expense—a stove that won’t light, a car that won’t start, a dog that limps, a faucet that leaks. And those are only the small things.
And when those financial emergencies arise, many of us don’t have the wherewithal to cover them.
As we know, those at the top are doing just fine. They continue to get their cut of the surplus—and to spend it on luxury cars and boats, apartments and houses, baubles and art. And put the rest in offshore accounts.
But many of the rest of are stretched by a combination of stagnant wages and salaries (going back decades now), escalating expenses (especially for healthcare and education), and barely regulated debt mechanisms (like credit cards). So, we live paycheck to paycheck, with barely any savings for eventualities (much less retirement), trying our best to keep it all together. . .
And then shit happens.
*Kontz is “co-founder of Your Mental Wealth™ and the Financial Psychology Institute, and a Partner of Occidental Asset Management, LLC.”