The National Bureau on Economic Research released its troubling findings from a recent study of American families’ readiness for “emergencies.” Pegging $2000 as the price of a serious car repair, hospital ER visit, appliance breakdown, or major home repair, researchers asked study participants if they could come-up with $2000 in thirty days, and they further asked how the people would do it. The results: approximately half of the participants said they could not pull together the funds they needed in time to meet the emergency. More precisely, 22% said they “probably” could not find the cash; another 28% responded they “definitely” could not scrape-up $2000 even if they used every resource and trick they could imagine.
Not surprisingly, most low-income families responded they would have little or no hope of borrowing or financing $2000. Researchers did express considerable surprise, however, their studied showed so-called “middle class” families were more cash-strapped than their low-income neighbors. More than half of middle-income families expressed pessimism about eking-out the cash an emergency would require.
Among the 50% of families who expressed some confidence they could weather a financial emergency, only a handful said they could draw from savings, and a few more reported they could liquid some assets in retirement funds. Those families that could meet an emergency primarily indicated they would use credit cards and payday loans; and many said they would skip regular car payments or utility bills.
One researcher commented, “It is not surprising that half of families are ‘economically fragile,’ because real unemployment remains about 20% and under-employment may run as high as 35%. Until the nation creates meaningful, well-paid jobs, families will remain vulnerable.” She went on to express grave concern about families’ willingness to use short-term loans: “Payday loans are extremely dangerous, because the lenders charge usurious interest rates, and many borrowers get trapped in endless cycles of borrowing, repaying, and borrowing again, making survival from paycheck-to-paycheck nearly impossible.”