Share of Households Ages 25-64 Reporting Difficulty with a $400 Unexpected Expense, by Income | Source: Federal Reserve, Survey of Household Economics and Decisonmaking (2017)

NELA Real Estate in 2019: Don’t Push Me ʼCause I’m Close to the Edge*

2019 Editions Featured Front Page More News News Real Estate September

By T.A. Hendrickson

For a long time now, housing costs in most areas have been rising faster than incomes. One result is that households have less cash to spend on things other than shelter. Another is credit card use to help cover daily expenses. A recent survey of 12,000 households in the U.S. illustrates how cash strapped many families have become.

In the survey, conducted by the Federal Reserve, fully two in five respondents (41%) said they would have trouble handling an unexpected $400 expense. Lower-income households, defined as those making $0 to $50,000 a year, made up the largest share of respondents who said a $400 emergency would be unmanageable, but the problem was not confined to lower-income households.

Among households making $50,000 to $75,000, 40% said that a $400 emergency would cause them to have to borrow, skip other bills or fail to meet the unexpected expense. For households making $75,000 to $100,000 and for those making more than $100,000, 34% and 17%, respectively, said they would have to scramble to come up with $400.

About half of the households that would struggle with an unexpected $400 expense simply do not have $400, according to researchers at Boston College who analyzed the data. Most of these households are lower income renters with poor job prospects, many of whom have student loans and credit cards in addition to rent; one in 10 are homeowners with a mortgage and household income between $50,000 and $75,000.

The other half of households that would struggle with an unexpected $400 expense have $400 in the bank, but to cover the expense, they would have to use money that would otherwise go toward paying their credit card bills. This group is mostly made up of middle- and high-income homeowners earning from $50,000 to more than $100,000. Their problem is layers of debt that consume their incomes, starting with the mortgage and including credit cards, student debt and other installment loans.

Fixing the situation will be a tall order: It would require an economy in which workers claim a larger share of the pie in terms of wages and salary and public policy that fosters the construction of enough affordable housing to meet demand.

* Grandmaster Flash, “The Message,” 1982



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