The Number of Americans Able to Cover a $400 Emergency Reaches a 9-Year High

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  • It's important to have money on hand for emergencies at all times.
  • The number of Americans who can cover a $400 expense completely using cash or its equivalent reached a new high late last year.

Talk about good news.

You never know when a sudden need for money might arise. Your car could break down, leaving you with a large bill to get it towed and fixed. Or, you might encounter an expensive home repair that can't be put off, or a medical issue your insurance plan won't fully cover.

Plus, you could lose your job at any time -- especially if economic conditions sour. A lot of people learned that the hard way in early 2020, when COVID-19 restrictions spurred a massive wave of unemployment.

It's for this reason that it's important to have money tucked away in a savings account at all times. And new Federal Reserve data reveals that Americans may be doing a better job in that regard.

In a May 2022 report based on data from late 2021, the Federal Reserve found that 68% of Americans could cover a $400 emergency expense using cash or its equivalent. For example, some people said they could pay that sort of bill by swiping a credit card but paying its balance in full when its statement arrived.

Of course, the bad news is that 32% of Americans clearly couldn't cover a $400 emergency using cash or its equivalent as of late last year. But the good news is that the share of people who are able to easily cope with such an expense reached its highest level since 2013.

Back in 2013, only 50% of Americans could cover a $400 expense using cash or its equivalent. In 2019, before the pandemic, that percentage was up to 63%. But surprisingly, that percentage didn't shrink in the wake of the COVID-19 crisis -- it rose instead, at least as of late 2021. We can perhaps thank stimulus funds for that.

Did inflation deplete Americans' cash reserves?

Now before we go any further, it's worth noting that there may be some supplemental data that paints a less rosy picture about Americans' ability to cover a $400 emergency. Recent findings from YouGov show that only 51% of Americans could come up with $400 on a whim, as opposed to 68%.

This data isn't contradictory. The data the Federal Reserve compiled is based on findings from November 2021, while YouGov's data is from May 2022. It could be the case that inflation forced a lot of people to spend down their savings, leaving them with inadequate cash reserves.

Since these two data sources are separate, it's hard to make a definitive comparison between Americans' ability to cover a $400 expense in late November versus now. The takeaway, therefore, should be that as of late last year, more Americans were equipped to come up with $400 on the spot than in the past, whereas at this moment, that may not be the case.

Is $400 enough for an emergency fund?

Most financial experts say that it's smart to have enough money in savings to cover a minimum of three months of bills. And so based on that, it's fair to say that $400 doesn't come close to cutting it for a full emergency fund.

As such, those who don't have much more than $400 to their names should make an effort to boost their savings. Of course, that's not an easy thing to do at a time when inflation is soaring. But one silver lining during these tricky economic times is that the gig economy is booming, so it may be easier than ever to go out and pick up a side hustle. That extra income could be instrumental in boosting savings.

Cutting back on spending should also help with growing savings balances. Some people, however, may be living very frugally already with few to no expenses to cut. But those who do have some leeway should reassess their spending habits and try to eke out savings where possible.

The reality is that a financial emergency could happen to anyone at any time. And it's important to be prepared for an expense that exceeds the $400 mark.

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