It’s not true that “almost half” of Americans couldn’t afford an unexpected $400 expense.
This idea comes from a question on the “Report on the Economic Well-Being of U.S. Households” done by the Federal Reserve every year. It is used to exacerbate the rich vs. poor discussion by politicians such as Sen. Elizabeth Warren and Sen. Bernie Sanders, to name a few.
Politicians and many in the media seem to be subtracting 61 from 100, and concluding that 39% of people, to use Warren’s phrase, “can’t come up with” the money they’d need to handle this situation.” said Michael R. Strain, director of economic policy studies at the American Enterprise Institute in Bloomberg Opinion. “Instead, as the Fed report makes clear, though “the remaining 4 in 10 adults” “would have more difficulty covering such an expense,” many of them would be able to make it work by carrying a credit card balance or borrowing from friends and family.
The report states: “Twelve percent of adults would be unable to pay the expense by any means.”
Some of the 39% might have money on hand — maintaining cash as a buffer, according to that same report. Carrying some credit debt is common and not necessarily indicative of an unhealthy financial situation.
We should not disregard the 12% of Americans who are in desperate financial circumstances, and there is no doubt it is an issue for our political leaders to point out.
However, this statistic is purposefully overblown, and the data that they’re choosing to use is exaggerated and can be misinforming voters.
As Strain concluded, “Why does the conventional wisdom about the $400 expense refuse to die? The easy answer is because it riles up voters and attracts readers. “