Bankrate’s January Financial Security Index survey reveals that just four in 10 U.S. adults (41 percent) would cover the cost of a $1,000 car repair or emergency room visit using savings. The findings echo what previous Bankrate studies and others — including the Federal Reserve and the Pew Charitable Trusts — have found about Americans’ lack of rainy-day savings.
The higher your household income, the more likely you would be to use savings to pay for unanticipated costs. That’s true for nearly six in 10 (59 percent) households earning $75,000 or more annually.
Men (45 percent) were more likely than women (38 percent) to say they would draw from savings when faced with the unexpected. And when their backs are against the wall, just 36 percent of younger millennials would turn to emergency funds to pay $1,000 (compared with 41 to 44 percent of older folks who would say the same).
- Bankrate reports indicate that the percentage of U.S. adults who would use their savings to cover a $1,000 emergency room visit or car repair has remained within the range of 37 to 41 percent since 2014.
- Nearly four in 10 Americans (37 percent) would borrow money in some capacity if hit with an unexpected bill.
- Among respondents who reported that they or a close relative paid for a major unanticipated expense in the past year (28 percent), the average cost was $3,518.
Coping with the unexpected
When in a pinch, those who lack emergency savings turn to other methods to make ends meet.
Compared with higher earners, households in the lowest income bracket were more likely to say they would borrow from family members or friends if faced with a $1,000 emergency. That’s true for one in four families earning under $30,000 per year (versus 7 percent among households in the highest income bracket).
The least-educated survey respondents (10 percent) were more likely to say they would use a personal loan to cover an unplanned expense than the most-educated adults (2 percent). And women (15 percent) were slightly more likely than men (11 percent) to say they would cut back and reduce spending if they found themselves financially strapped in a crisis.
Overall, for adults without enough savings to cover a $1,000 emergency, the most common alternative is using a credit card. That was the preferred payment method for 16 percent of Americans. Going into debt to deal with a rainy day can get expensive.
“But this comes at a high cost, as the average $3,500 expense financed at the national average credit card rate of 17 percent would require monthly payments of $125, taking three years to pay off and incurring nearly $1,000 in finance charges,” says Greg McBride, CFA, Bankrate chief financial analyst. “Whatever savings you can accumulate acts as a buffer from high-cost debt when unplanned expenses arise.”