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> It's not like Americans become poorer due to inflation, because all their wealth is denominated in dollars. What of the nearly 40% of Americans that can't co

> It's not like Americans become poorer due to inflation, because all their wealth is denominated in dollars. What of the nearly 40% of Americans that can't cover a surprise $400 expense, due to having no wealth?

pirate787 5y ago
That 40%/$400 thing is fake news. https://www.cato.org/blog/it-true-40-americans-cant-handle-400-emergency-expense-0 https://www.cato.org/blog/it-true-40-americans-cant-handle-4...
- saint_abroad 5y ago
  Reality is more nuanced than that. https://www.politifact.com/factchecks/2019/jan/29/howard-schultz/checking-howard-schultzs-claim-40-percent-american/ https://www.politifact.com/factchecks/2019/jan/29/howard-sch... The survey actually states, "Four in 10 adults, if faced with an unexpected expense of $400, would either not be able to cover it or would cover it by selling something or borrowing money." https://www.federalreserve.gov/publications/2018-economic-well-being-of-us-households-in-2017-executive-summary.htm https://www.federalreserve.gov/publications/2018-economic-we... Nevertheless, that doesn't strike me as having wealth.
  - jandrewrogers 5y ago
    The key point is that most of the people "borrowing money" have the means to pay cash but choose not to. It is a question of how they could pay, not if they could pay. I borrow money all the time when I could easily pay cash. Credit is more convenient and doesn't cost me anything. Similarly, I have a car loan even though I could have paid cash for the car. It is sensible finance.
    - sumtechguy 5y ago
      borrowing money right now to buy something is not a bad idea... (i think) If they have just printed a ton of cash (they did) that means at some point it will correct. Meaning you in the long term might beat the interest rate if inflation gets higher than that. just an idea.
    - bombcar 5y ago
      “How would I pay a $400 bill” will always be “charge it” unless there’s a cost associated- getting a check or cash from the bank is a hassle.
    - edoceo 5y ago
      a loan (with interest?), on a depreciating "asset", which obligates higher risk-premium (ie:insurance) does not seem sensible to me (and never has when I run the numbers).
      - jandrewrogers 5y ago
        It absolutely makes sense as a matter of elementary finance to use a loan when interest rates are low rather than paying cash -- I was buying a car regardless. The interest rate on the loan is far below my average rate of return investing the same amount of cash. The profit on the invested cash exceeds the loss from loan interest; I get to keep the remainder. Similarly, I put all of my daily expenses on credit. I pay off all of that credit at the end of the month. I am still borrowing money but I am paying no interest on it.
        thekyle 5y ago
        What did you invest the cash in? Corporate bonds?
        jandrewrogers 5y ago
        No, bonds are a poor investment right now. I generally invest in equities.
        thekyle 5y ago
        Well that is an interesting strategy. Seems kind of high risk, high reward since equities could crash and not recover before your loan is due.
  - bzbarsky 5y ago
    What the survey _actually_ says (and what the politifact fact-check does not dig into) is that if you ask people how they would deal with an unexpected $400 expense, given them a list of possible options, and tell them to select all options that would apply 40% select at least one of the "selling or borrowing" options. Note that if you add up the percentages for all the options in that survey, it adds up to 143%, because you can select more than one option. The problem is that it's impossible to tell what's actually going on due to this survey design. For example: what is the overlap between the set of people who check "just pay it out of checking/savings" (50%) and the set of people who check "charge it and pay off in full at the end of the month" (36%)? I would rate both answers as "these people have the $400 on hand". The fraction of people who checked at least one of these options is somewhere between 50% and 86%, depending on how much overlap there is. And you can't tell, from this survey, where it lies in that range. Similarly, you can't actually conclude the "Four in 10 adults, if faced with an unexpected expense of $400, would either not be able to cover it or would cover it by selling something or borrowing money" thing from these numbers, so the executive summary is rather misleading. Politifact takes that summary as an accurate summary of the survey results, but it doesn't seem to be. As far as I can tell, that 40% comes from adding up non-mutually-exclusive percentages. It's the equivalent of claiming that 86% of people would just pay it off based on the above 50% and 36% numbers. I should also note that the survey included full-time students under "adults", and if I had an unexpected $400 expense at various points as a student I would have absolutely had to borrow money to cover it. Looking around briefly, there are ~20 million full-time college students in the US as of 2020, which is ~6% of adults. While it would obviously better if college students had larger cash cushions, a college student borrowing money from parents to pay $400 is not the mental image most people have when reading the executive summary here... Now the fact that no matter how you slice these survey results no fewer than 8%, and maybe up to 50% of non-college-student adults don't have $400 on hand if they need it is still a significant problem from my point of view. Especially because I really doubt it's as low as the 8% option. But I am also quite certain it's nowhere close to 40%....
    - saint_abroad 5y ago
      > what is the overlap between the set of people who check "just pay it out of checking/savings" (50%) and the set of people who check "charge it and pay off in full at the end of the month" (36%)? The report plainly states: > When faced with a hypothetical expense of only $400, 59 percent of adults in 2017 say they could easily cover it, using entirely cash, savings, or a credit card paid off at the next statement (referred to, altogether, as "cash or its equivalent") https://www.federalreserve.gov/publications/2018-economic-well-being-of-us-households-in-2017-dealing-with-unexpected-expenses.htm https://www.federalreserve.gov/publications/2018-economic-we... The 4 in 10 comes from the very next paragraph of the report: > Among the remaining 4 in 10 adults who would have more difficulty covering such an expense... https://www.federalreserve.gov/publications/2018-economic-well-being-of-us-households-in-2017-dealing-with-unexpected-expenses.htm https://www.federalreserve.gov/publications/2018-economic-we... and, from the very next figure in the report, none of the 4 in 10 would use "cash or its equivalent" to cover such an expense. https://www.federalreserve.gov/publications/2018-economic-well-being-of-us-households-in-2017-dealing-with-unexpected-expenses.htm#xfigure12-otherwaysthatindividualswo-7c202db6 https://www.federalreserve.gov/publications/2018-economic-we... From this data, it is reasonable to conclude that "Four in 10 adults would not use 'cash, savings, or a credit card paid off at the next statement' to cover such an expense."
- rootusrootus 5y ago
  I think it is interesting that the writer of that article pointed out that the total adds up to 143% because multiple choices were allowed, but then argues that the real number [of people who can actually afford $400] is 86% by adding two of the choices. The entirety of the 36% could potentially be included in the 50%.

pirate787 5y ago

That 40%/$400 thing is fake news. https://www.cato.org/blog/it-true-40-americans-cant-handle-400-emergency-expense-0 https://www.cato.org/blog/it-true-40-americans-cant-handle-4...

saint_abroad 5y ago
Reality is more nuanced than that. https://www.politifact.com/factchecks/2019/jan/29/howard-schultz/checking-howard-schultzs-claim-40-percent-american/ https://www.politifact.com/factchecks/2019/jan/29/howard-sch... The survey actually states, "Four in 10 adults, if faced with an unexpected expense of $400, would either not be able to cover it or would cover it by selling something or borrowing money." https://www.federalreserve.gov/publications/2018-economic-well-being-of-us-households-in-2017-executive-summary.htm https://www.federalreserve.gov/publications/2018-economic-we... Nevertheless, that doesn't strike me as having wealth.
- jandrewrogers 5y ago
  The key point is that most of the people "borrowing money" have the means to pay cash but choose not to. It is a question of how they could pay, not if they could pay. I borrow money all the time when I could easily pay cash. Credit is more convenient and doesn't cost me anything. Similarly, I have a car loan even though I could have paid cash for the car. It is sensible finance.
  - sumtechguy 5y ago
    borrowing money right now to buy something is not a bad idea... (i think) If they have just printed a ton of cash (they did) that means at some point it will correct. Meaning you in the long term might beat the interest rate if inflation gets higher than that. just an idea.
  - bombcar 5y ago
    “How would I pay a $400 bill” will always be “charge it” unless there’s a cost associated- getting a check or cash from the bank is a hassle.
  - edoceo 5y ago
    a loan (with interest?), on a depreciating "asset", which obligates higher risk-premium (ie:insurance) does not seem sensible to me (and never has when I run the numbers).
    - jandrewrogers 5y ago
      It absolutely makes sense as a matter of elementary finance to use a loan when interest rates are low rather than paying cash -- I was buying a car regardless. The interest rate on the loan is far below my average rate of return investing the same amount of cash. The profit on the invested cash exceeds the loss from loan interest; I get to keep the remainder. Similarly, I put all of my daily expenses on credit. I pay off all of that credit at the end of the month. I am still borrowing money but I am paying no interest on it.
      - thekyle 5y ago
        What did you invest the cash in? Corporate bonds?
        jandrewrogers 5y ago
        No, bonds are a poor investment right now. I generally invest in equities.
        thekyle 5y ago
        Well that is an interesting strategy. Seems kind of high risk, high reward since equities could crash and not recover before your loan is due.
- bzbarsky 5y ago
  What the survey _actually_ says (and what the politifact fact-check does not dig into) is that if you ask people how they would deal with an unexpected $400 expense, given them a list of possible options, and tell them to select all options that would apply 40% select at least one of the "selling or borrowing" options. Note that if you add up the percentages for all the options in that survey, it adds up to 143%, because you can select more than one option. The problem is that it's impossible to tell what's actually going on due to this survey design. For example: what is the overlap between the set of people who check "just pay it out of checking/savings" (50%) and the set of people who check "charge it and pay off in full at the end of the month" (36%)? I would rate both answers as "these people have the $400 on hand". The fraction of people who checked at least one of these options is somewhere between 50% and 86%, depending on how much overlap there is. And you can't tell, from this survey, where it lies in that range. Similarly, you can't actually conclude the "Four in 10 adults, if faced with an unexpected expense of $400, would either not be able to cover it or would cover it by selling something or borrowing money" thing from these numbers, so the executive summary is rather misleading. Politifact takes that summary as an accurate summary of the survey results, but it doesn't seem to be. As far as I can tell, that 40% comes from adding up non-mutually-exclusive percentages. It's the equivalent of claiming that 86% of people would just pay it off based on the above 50% and 36% numbers. I should also note that the survey included full-time students under "adults", and if I had an unexpected $400 expense at various points as a student I would have absolutely had to borrow money to cover it. Looking around briefly, there are ~20 million full-time college students in the US as of 2020, which is ~6% of adults. While it would obviously better if college students had larger cash cushions, a college student borrowing money from parents to pay $400 is not the mental image most people have when reading the executive summary here... Now the fact that no matter how you slice these survey results no fewer than 8%, and maybe up to 50% of non-college-student adults don't have $400 on hand if they need it is still a significant problem from my point of view. Especially because I really doubt it's as low as the 8% option. But I am also quite certain it's nowhere close to 40%....
  - saint_abroad 5y ago
    > what is the overlap between the set of people who check "just pay it out of checking/savings" (50%) and the set of people who check "charge it and pay off in full at the end of the month" (36%)? The report plainly states: > When faced with a hypothetical expense of only $400, 59 percent of adults in 2017 say they could easily cover it, using entirely cash, savings, or a credit card paid off at the next statement (referred to, altogether, as "cash or its equivalent") https://www.federalreserve.gov/publications/2018-economic-well-being-of-us-households-in-2017-dealing-with-unexpected-expenses.htm https://www.federalreserve.gov/publications/2018-economic-we... The 4 in 10 comes from the very next paragraph of the report: > Among the remaining 4 in 10 adults who would have more difficulty covering such an expense... https://www.federalreserve.gov/publications/2018-economic-well-being-of-us-households-in-2017-dealing-with-unexpected-expenses.htm https://www.federalreserve.gov/publications/2018-economic-we... and, from the very next figure in the report, none of the 4 in 10 would use "cash or its equivalent" to cover such an expense. https://www.federalreserve.gov/publications/2018-economic-well-being-of-us-households-in-2017-dealing-with-unexpected-expenses.htm#xfigure12-otherwaysthatindividualswo-7c202db6 https://www.federalreserve.gov/publications/2018-economic-we... From this data, it is reasonable to conclude that "Four in 10 adults would not use 'cash, savings, or a credit card paid off at the next statement' to cover such an expense."
rootusrootus 5y ago
I think it is interesting that the writer of that article pointed out that the total adds up to 143% because multiple choices were allowed, but then argues that the real number [of people who can actually afford $400] is 86% by adding two of the choices. The entirety of the 36% could potentially be included in the 50%.