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It is a myth that a large share of people can’t cover a $400 emergency expense

bloomberg.com

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Re: It is a myth that a large share of people can’t cover a $400 emergency expense

#21

Post by olliej »

ac29 wrote: post #19
olliej wrote: post #18

Earlier quoted context omitted.

If you’re on the bottom rung I’m guessing your interest rate is >20%, (the max is apparently 29.9%). Divide by 12 and one month of interest rate is as much, if not more, than 1.5% cash back. Using debt to save money depends on starting with a reasonable amount of money.

> put the $400 on the card ( and pay it off before paying interest ) Depending where you are in the credit cycle, it could be ~30-50 days before incurring any interest.

that "without interest" bit is not dependent on where you are in the cycle: it's 30-50 days from the last point of zero balance.

And of course 30 days without interest is basically "you pay it off in a months time".

I realized that another part of my problem with this column is of course that "using debt" for many people means a payday loan, which seem to be forever relabelling their "service" to avoid being called a 30%/week credit line.

Re: It is a myth that a large share of people can’t cover a $400 emergency expense

#22

Post by WalterBright »

WalterBright wrote: post #20
wilg wrote: post #10

I somehow read this article the first time without realizing it's totally wrong. Here's the direct quote from the original government report [1]: > If faced with an unexpected expense of $400, 61 percent of adults say they would cover it with cash, savings, or a credit card paid off at the next statement—a modest improvement from the prior year. Similar to the prior year, 27 percent would borrow or sell something to…

Many people have no cash, despite not being poor at all. All their money is tied up in assets, and they borrow for living expenses. A typical example is someone with a mortgage. His mortgage debt is probably quite a bit higher than his "cash", and so any cash he spends is effectively borrowed from the mortgage company. This means the answer to the survey question depends on one's frame of reference with regard to how…

Let's put it another way. Suppose you have a $100,000 mortgage on which you're paying 6% interest. You have a savings account with $2,000 in it that pays 2% interest.

The savings account is costing you 4% per year.

Faced with this, one is better off putting extra cash into paying down the mortgage rather than in a savings account. It puts one in a "cash poor" position, which is not the same as being poor.

Re: It is a myth that a large share of people can’t cover a $400 emergency expense

#23

Post by robjan »

olliej wrote: post #21
ac29 wrote: post #19

Earlier quoted context omitted.

> put the $400 on the card ( and pay it off before paying interest ) Depending where you are in the credit cycle, it could be ~30-50 days before incurring any interest.

that "without interest" bit is not dependent on where you are in the cycle: it's 30-50 days from the last point of zero balance. And of course 30 days without interest is basically "you pay it off in a months time". I realized that another part of my problem with this column is of course that "using debt" for many people means a payday loan, which seem to be forever relabelling their "service" to avoid being called a…

When you pay your credit card, it clears the balance on a first in first out basis. So if I spend 1k today then 1k in 30 days time, I only have to pay 1k to clear the statement balance and avoid paying interest.

Re: It is a myth that a large share of people can’t cover a $400 emergency expense

#24

Post by loudandskittish »

> You’d frequently have a coworker out of the office who can’t afford to buy a new tire. You’d frequently hear from friends and neighbors who can’t afford to fix their dishwashers.

Ugh. The people who can't come up with $400 to cover an emergency DON'T OWN CARS! That's why you don't hear about them missing work because they couldn't afford a new tire. They take public transit, or they walk because they can't afford bus fare due to an emergency and probably don't talk about it at work due to feeling ashamed (I know, I've been there).

Nor do they own dishwashers...this is some of the worst logic I've ever heard and the author of this article really needs to get out of his bubble. (Can't believe I wasted my last "last free article" on this nonsense.)

Re: It is a myth that a large share of people can’t cover a $400 emergency expense

#25

Post by SerLava »

loudandskittish wrote: post #24

> You’d frequently have a coworker out of the office who can’t afford to buy a new tire. You’d frequently hear from friends and neighbors who can’t afford to fix their dishwashers. Ugh. The people who can't come up with $400 to cover an emergency DON'T OWN CARS! That's why you don't hear about them missing work because they couldn't afford a new tire. They take public transit, or they walk because they can't afford b…

You'd see golf tournaments canceled nearly every season

Re: It is a myth that a large share of people can’t cover a $400 emergency expense

#26

Post by Gibbon1 »

SerLava wrote: post #12

This is splitting hairs. 40% of Americans can't come up with $400 but luckily a majority of those know a financial institution that can come up with $400 for them. Anyone who does not have an emergency $400 is not going to have a great time with an unexpected $400 debt on top of whatever else their debt obligations and expenses are. Is it so hard to believe that we want to live in a country where pretty much everyone…

I see it as the neoliberal revolution has failed to deliver and it's apologists are grasping at straws to avoid staring down the damage they have done to the bulk humanity. They'll also say things like well it was bad for people living the Midwest but look at all the Chinese lifted out of poverty. Ignoring that China was too large and coherent to beat into submission like smaller countries were. And thus they didn't inflict those policies on their people.

Re: It is a myth that a large share of people can’t cover a $400 emergency expense

#27

Post by salawat »

loudandskittish wrote: post #24

> You’d frequently have a coworker out of the office who can’t afford to buy a new tire. You’d frequently hear from friends and neighbors who can’t afford to fix their dishwashers. Ugh. The people who can't come up with $400 to cover an emergency DON'T OWN CARS! That's why you don't hear about them missing work because they couldn't afford a new tire. They take public transit, or they walk because they can't afford b…

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Re: It is a myth that a large share of people can’t cover a $400 emergency expense

#28

Post by dvfjsdhgfv »

WalterBright wrote: post #22
WalterBright wrote: post #20

Earlier quoted context omitted.

Many people have no cash, despite not being poor at all. All their money is tied up in assets, and they borrow for living expenses. A typical example is someone with a mortgage. His mortgage debt is probably quite a bit higher than his "cash", and so any cash he spends is effectively borrowed from the mortgage company. This means the answer to the survey question depends on one's frame of reference with regard to how…

Let's put it another way. Suppose you have a $100,000 mortgage on which you're paying 6% interest. You have a savings account with $2,000 in it that pays 2% interest. The savings account is costing you 4% per year. Faced with this, one is better off putting extra cash into paying down the mortgage rather than in a savings account. It puts one in a "cash poor" position, which is not the same as being poor.

It seems logical to pay off debts as soon as you can as they're expensive. However, in your example, if I use that $2,000 to pay down (a tiny bit of) my mortgage, I put myself in a dangerous position by not being able to come up with some extra cash in case of emergency. I hope most people with mortgages wouldn't do that.

Re: It is a myth that a large share of people can’t cover a $400 emergency expense

#29

Post by flukus »

WalterBright wrote: post #22
WalterBright wrote: post #20

Earlier quoted context omitted.

Many people have no cash, despite not being poor at all. All their money is tied up in assets, and they borrow for living expenses. A typical example is someone with a mortgage. His mortgage debt is probably quite a bit higher than his "cash", and so any cash he spends is effectively borrowed from the mortgage company. This means the answer to the survey question depends on one's frame of reference with regard to how…

Let's put it another way. Suppose you have a $100,000 mortgage on which you're paying 6% interest. You have a savings account with $2,000 in it that pays 2% interest. The savings account is costing you 4% per year. Faced with this, one is better off putting extra cash into paying down the mortgage rather than in a savings account. It puts one in a "cash poor" position, which is not the same as being poor.

> Faced with this, one is better off putting extra cash into paying down the mortgage rather than in a savings account.

Cash poor means no easily accessible source of cash, it doesn't refer to the amount of money in your wallet. In your scenario you can access that cash again by jumping onto the banks website (or even visiting the bank) and moving it to your everyday account.

Re: It is a myth that a large share of people can’t cover a $400 emergency expense

#30

Post by masonic »

wilg wrote: post #10

I somehow read this article the first time without realizing it's totally wrong. Here's the direct quote from the original government report [1]: > If faced with an unexpected expense of $400, 61 percent of adults say they would cover it with cash, savings, or a credit card paid off at the next statement—a modest improvement from the prior year. Similar to the prior year, 27 percent would borrow or sell something to…

Taken literally, they claim that zero would use a debit card, which I find unbelievable. I don't think their universe of responses was well thought out.
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