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A Mentality Problem? Many Americans Can’t Afford An Extra $400 Expense

Benj

The latest Federal Reserve survey has shockingly found that four in 10 American adults would find themselves in a bit of trouble if they had to cover an unexpected expense of only $400, either with cash, savings or a credit card charge that could be quickly paid off. That’s a tough pill to swallow in a time of supposed economic prosperity and recovering … when the unemployment rate is low and falling (lower that at any time since 1969) and when business are hiring around every corner.  

Nonetheless, the Federal Reserve report notes that “Relatively small, unexpected expenses, such as a car repair or replacing a broken appliance, can be a hardship for many families without adequate savings. When faced with a hypothetical expense of $400, 61% of adults in 2018 say they would cover it, using cash, savings, or a credit card paid off at the next statement”.

By all the talk in the corridors of power, Americans should be doing quite well--so what gives with the Federal Reserve’s survey?

The bigger picture apparently belies a collection of smaller, much less positive pictures. Those pictures depict the bulk of U.S. households living paycheck to paycheck as a way of life.

And it’s not just about economics: It’s about the philosophy of spending in many cases. Nor is it just an American problem. The luxury of the Western way of thinking is an optimistic one that tends to ignore the possible potholes of the future.

Still, despite the fact that over 60 percent of U.S. adults couldn’t absorb a surprise $400 charge, the survey indicates that Americans are generally satisfied with their economic status.  

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As an example, adults belonging to minority groups were more likely to say that they were better off than their parents. About 64 percent of black adults with at least a bachelor's degree reported doing better financially than their parents had. At the same time, 58 percent of white adults held the same sentiment.

“We continue to see the growing U.S. economy supporting most American families,” Michelle W. Bowman, a Federal Reserve Board governor, said in a statement. As always there are differences in living conditions between rural and urban areas, but it is something that is already constant.

“…  the survey does find differences across communities, with just over half of those living in rural areas describing their local economy as good or excellent compared to two-thirds of those living in cities. Across the country, many families continue to experience financial distress and struggle to save for retirement and unexpected expenses," according to the Federal Reserve.

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According to a previous study by CIT Bank, 29 percent of Americans surveyed had taken “extreme” measures to finance a vacation, including the use of bank loans, cleaning out their savings accounts or maxing out their credit cards.

Indeed, it’s not just a question of whether the economy is really doing well, or not. It’s not just a question of whether unemployment is low or high--it’s a question of the American mentality on spending and finance. And right now, that mentality is not conducive to any real cash flow. Americans are spending like there’s no tomorrow, and the consequences be damned.

We do not have to be economic experts to conclude that it's bad and dangerous to be in a sustained situation of having little or no emergency savings. The Fed report, as such, should serve as a warning sign, not a criticism of the economy at large.

By Alex Kimani for Safehaven.com

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