A recent Bankrate survey shows that only 44% of Americans could cover an unplanned $1,000 expense, and inflation is impacting their ability to save.
That means 56%, more than half, probably couldn't afford to pay the average emergency roof-repair bill, or replace a higher-end iPhone. Not to mention an unexpected medical bill.
The results of the new survey from Bankrate.com do indicate Americans' improving ability to cover emergencies compared to past years, however. In 2021, only 39% of respondents said they could afford an unexpected $1,000 bill, while in 2020, 41% said the same.
“While this has been the highest result in 8 years of polling, Americans have long been undersaved and the pandemic really underscored that, Greg McBride, chief financial analyst at Bankrate.com, said in a statement.
The rest of survey respondents stated they would have to leverage themselves somehow to pay the $1,000 expense: 20% would charge it on a credit card and pay it off over time, 10% would borrow from friends or family, and 4% would take out a personal loan.
Meanwhile, only 15% of respondents said they would reduce their spending in other areas.
Altogether, nearly 35% would need to borrow the money in some way – via a credit card, personal loan, or from family or friends – if they incurred an unexpected $1,000 expense.
“While the ability to cover an unplanned $1,000 expense from savings is the best we’ve seen over the past 8 years, the majority of Americans still cannot afford to do so,” says McBride. “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.”
The survey also reveals that the higher your household income, the more likely you would be able to use savings to pay for unanticipated costs. For households earning $75,000 or more annually, 58% have built enough of a nest egg to absorb a $1,000 hit, the Bankrate survey found. For households making less than $30,000, just 21% can cover that $1,000 bill.
Age also matters: Only one-third of millennials said they could turn to emergency funds to pay $1,000. But 46% of Gen Xers and 45% of boomers said they could pay the bill.
"Inflation is playing a part in Americans being undersaved right now, but saving is an essential part of a healthy financial picture,” McBride says.
Automating savings is a great way to get started. “Think of it as paying yourself first. Set up a direct deposit from your paycheck right into your savings account. Gig workers can set up an automatic transfer from checking to savings.”
“Doing it this way allows your savings to build in the background without you even thinking about because inevitably you will need it.” says McBride.
