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Nearly 40% of Americans can't cover a surprise $400 expense

In wealthy countries, a shrinking middle class
  • Although unemployment in the U.S. is at its lowest level since 1969, roughly 4 in 10 Americans would struggle covering a $400 emergency expense, Federal Reserve data show.
  • 17% of U.S. adults are unable to pay all of their bills in full every month, according to the Fed data.
  • A quarter of Americans skipped necessary medical care in 2018 because they couldn't afford the cost.

Nearly 40 percent of Americans would struggle to cover an unexpected $400 expense, according to a new report by the Federal Reserve — a stark reminder of many people's financial insecurity even amid solid economic growth. "Relatively small, unexpected expenses, such as a car repair or replacing a broken appliance, can be a hardship for many families without adequate savings," the researchers found.

With political campaigns for the 2020 election heating up, such figures provide fodder for candidates who argue the economy is hobbled by searing inequality and vulnerable to a downturn after 10 years of growth since the last recession. The data also highlight what is often a disconnect between "headline" economic numbers, such as unemployment and gross domestic product, that pundits and politicians often trumpet and the more complex reality facing millions of Americans.

Although the U.S. jobless rate is at a nearly 50-year low, for example, many employees in retail, the restaurant sector and other service jobs regularly face sharp swings in income and lack basic benefits, such as adequate health care insurance, paid-time off from work and company-sponsored retirement plans.

What that means on the ground: Even a thriving economy can leave people close to the edge. The Fed found that 27% of survey respondents would have to borrow money or sell something to cover a $400 emergency — 12% couldn't cover it at all. Other findings from the annual Fed report, which is based on a survey last fall of 11,000 people:

  • 17% of U.S. adults are unable to pay all of their bills in full every month.
  • 25% of Americans skipped necessary medical care in 2018 because they couldn't afford the cost.
  • 30% of families must cope with income that that varies from month to month.  
  • 25% of adults who are still in the labor force have no retirement savings or pension.  
  • 30% of people either can't pay their bills or are one modest financial emergency from serious trouble. 

"Across the country, many families continue to experience financial distress and struggle to save for retirement and unexpected expenses," Fed Reserve Board Governor Michelle Bowman said in a statement that accompanied the report.

The findings align with considerable other research showing how many people — including some in the middle class — routinely find themselves stretched financially. According to a study earlier this month from the non-partisan Urban Institute, for instance, 4 in 10 Americans sometimes grapples with what economists call "material hardship" — difficulty paying for basic needs such as food and housing.

Are you OK?

Not everything is doom and gloom. Asked how they're doing economically overall, three-quarters of Americans said they're "doing OK" or "living comfortably" — that's up significantly since the Fed launched the yearly survey in 2013. Most people also say local economic conditions are in decent shape.

Yet such self-reported descriptions can mask the gap between America's economic winners and losers. College graduates report far higher levels of well-being than those with only a high school degree, while whites are significantly more likely than minorities to say they're bearing up financially. The depth of financial distress around the country — and at a time of relative economic strength — also raises questions about what will happen when the U.S. economy inevitably slows down.

"[A]nother year of economic expansion and the low national unemployment rates did little to narrow the persistent economic disparities by race, education and geography," the Fed researchers wrote.

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