Bank of America CEO and Chairman Brian Moynihan talks about Fed interest rate hikes, consumer resilience in 2024, and regulation of major banks.
A majority of Americans say a $1,000 emergency expense is too big a hit to their savings and they can't afford, according to new data released Wednesday.
According to Bankrate's latest findings, 56% of U.S. adults lack an emergency fund to handle a $1,000 unexpected expense, and one-third (35%) have some kind of emergency fund to pay for it. The answer is that you need to borrow money in the form of a loan.
Most U.S. adults say they can't afford a $1,000 emergency expense from their savings. (image/image)
Of these, 21% said they would likely put such expenses on a credit card, 10% said they would borrow funds from family or friends, and 4% said they would take out a personal loan. 16% said they would cut spending in other areas to cover the bill.
“Too many Americans are playing with fire with their personal finances in the sense that they don't have enough emergency savings,” said Mark Hamrich, senior economic analyst at Bankrate. “Inflation is the main impediment to further progress in savings.''
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Perhaps unsurprisingly, the older a respondent is, the more likely they are to say they could pay for $1,000 out of their own savings.
59% of baby boomers (ages 60-78) say spending $1,000 is acceptable, followed by 43% of millennials (ages 28-43), 36% of Gen Xers (ages 44-59), and Gen Z. (18-27 years old)
A customer shops at a grocery store in Brooklyn, New York, on December 13, 2022. Since January 2021, inflation has increased by more than 17%. (Michael Nagle/Xinhua via Getty Images/Getty Images)
“On the other hand, it is notable that an increasing number of individuals and households do not have funds at their disposal to meet unexpected expenses,” Hamrich said. “Historically high inflation has certainly put a strain on household budgets in recent years, but real wages are trending upwards and there is improvement in this sector.”
Credit card delinquencies soar as Americans battle high inflation and interest rates
The inflation rate has cooled significantly from a peak of 9.1% in June 2022 to 3.4% year-on-year in December. However, compared to January 2021, just before that, the inflation crisis has begunprices rose by a whopping 17.6%.
Rapidly rising prices have put a strain on American household budgets, leading Americans to pay more on their credit cards each day. Inflation is easing due to the Federal Reserve's aggressive interest rate hike campaign, but data from Bankrate earlier this month showed the average annual interest rate hit a new record of 20.72%, and credit Card balances are accelerating.
The average interest rate on credit cards hit a record high of 20.72% earlier this month. (Robert Nickelsburg/Getty Images/Getty Images)
“The good news is that inflation is receding and from a savings yield perspective, we continue to have the best yields we've had in years,” Hamrich said.
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“There's never been a better time to prioritize emergency savings,” he added. “Otherwise, potentially higher borrowing rates will be an impact, especially when average credit rates are close to 21%. This is another expensive coin in the proverbial high interest rate environment. This is a very important aspect.”
FOX Business' Megan Henney contributed to this report.
