In the Federal Reserve’s “Report on the Economic Well-Being of U.S. Households in 2014” (pdf):
Forty-seven percent of respondents say they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money.
I was tempted to write that these households are living paycheck-to-paycheck. That isn’t quite true. Note that some portion of the respondents said they could cover a $400 expense by selling something or borrowing money.
You can only sell so many things before you run out of things to sell, of course. And using a credit card for financial emergencies is not a terrible plan as long as the emergencies don’t come one after another. Too many, and the monthly credit card bill becomes an emergency all by itself.
Of course, what many of those respondents mean by borrowing is taking out a payday loan, using a refund-anticipation loan, or another high-interest option. Like a credit card, a high-interest loan can quickly become its own emergency.
So while it’s not quite correct to say half of Americans are living paycheck to paycheck, it’s not too far off. And I’ll bet a substantial portion of the 53% who could cover a $400 emergency just have bigger paychecks and bigger expenses so that $400 isn’t such a big blow to their budgets.
The lack of savings is a theme running through the report. About half of Americans aren’t saving for retirement or anything else, either. Half of Americans, in other words, don’t have any real safety net. Here is the Federal Reserve’s video summary: