For years, $400 has served as shorthand for the precarious state of the U.S. consumer’s financial health — namely, whether they could afford to meet an unanticipated emergency expense.
The number has been firmly entrenched in the discussion on finances in this country, including in the annual reports on economic wellbeing released by the Federal Reserve every year.
Now, it seems a long way off.
By about $1,000.
The way LendingClub Financial Health Officer Anuj Nayar said he sees it, that figure falls woefully short of the reality confronting us today. It turns out, as joint research from his company and PYMNTS uncovered, that unanticipated emergencies actually cost consumers an average of $1,400.
Nayar noted that these days, inflation has driven up the cost of all manner of expenses to the point where even buying a replacement tire or two — to address a common, everyday flat — can easily run several hundreds of dollars. A visit to the emergency room can run into thousands of dollars.
It’s been well established by now that the paycheck-to-paycheck economy encompasses roughly 60% of individuals, all of whom have little, if anything, left over to save once they’ve paid the bills every month.
More consumers than ever are on the edge of meeting those expenses without too much difficulty — and slipping into the realm of struggling to make the monthly nut. Those emergency expenses might serve as the tipping point, said Nayar.
Saving cushions are being depleted rapidly, where simply paying for gas and food becomes an ongoing and increasing challenge. As many as 13% of consumers have, in the past few months, spent more money than they’ve taken in (that equates to 33.5 million consumers).
“The only way to make up that gap is to use credit or to dip into savings, and that pushes you farther into the paycheck-to-paycheck environment … Any extra bump into the road can push you into that category,” he said.
In the current environment, he said, more than half of consumers are using cash to pay for emergency expenses, and roughly 23% use credit (but are still paying off balances in full each month). But another 18% are using the card and moving that into a long-term, revolving credit balance.
“It’s hard to manage all this when your savings rates are going down and the rates on credit card debt are increasing,” Nayar said.
And although there are signs that inflation may be peaking, it’s anyone’s guess as to how the next few months (and the all-important holiday shopping season) will play out.
Regardless of the inflationary picture, here are some silver linings. FinTechs and platforms (LendingClub among them) can help individuals regain some financial equilibrium and make the moves toward better financial health. Rolling debt into installment loans, Nayar offered as one example available on his firm’s platform, can be a more palatable (and affordable option) than opting to keep paying high-interest revolving charges.
“Technology is being used as a way to help our members and everyday Americans get back on a path where they can start to build back the cushion for savings,” said Nayar, adding that “people do not need to keep turning to the same old solutions they have been using for decades.”