Board of Governors of the Federal Reserve System

Dealing with Unexpected Expenses

The overall share of adults able to withstand small financial emergencies was similar to pre-pandemic levels; however, financial challenges remained for the millions of Americans who have been laid off in the past year. After rising in July above pre-pandemic levels while many relief policies were in place, the share of adults able to withstand small financial emergencies returned to pre-pandemic levels by November. However, many Americans faced a substantial financial setback when they lost their jobs during the pandemic. Those who were laid off then faced lower rates of preparedness for additional financial emergencies both large and small. Among laid-off workers, Black and Hispanic workers and those with less education, in particular, faced challenges covering additional financial emergencies.

Small, Unexpected Expenses

Relatively small, unexpected expenses, such as a car repair or a modest medical bill, can be a hardship for many families. When faced with a hypothetical expense of $400, 64 percent of all adults in November 2020 said they would have covered it exclusively using cash, savings, or a credit card paid off at the next statement (referred to, altogether, as "cash or its equivalent")—largely unchanged from 2019 (figure 17). However, in July 2020 when pandemic-related relief policies reached many households, this figure was a higher 70 percent. The decline from July to November is consistent with some families spending down additional savings from these relief programs over time. In November, just half of adults who were laid off in the past 12 months would have covered the expense with cash or its equivalent.

The 35 percent of adults who would not have paid completely with cash or its equivalent may have had more difficulty covering such an expense. For these adults, the most common approach was to use a credit card and then carry a balance, although many indicated they would use multiple approaches (figure 18).²⁸ Twelve percent of all adults said they would be unable to pay the expense by any means, matching that seen in 2019.

To understand more about covering household expenses, the survey asked about adults' ability to pay their monthly bills. More than one-fourth of adults had one or more bills that they were unable to pay in full that month or were one $400 financial setback away from being unable to pay them. This includes 16 percent of adults who were unable to pay their bills in full in November. Consistent with results on how people would cover a $400 expense, this share was slightly lower in July 2020 (15 percent).

Being unable to pay bills on time can have serious consequences. For renters facing challenges paying their bills, 36 percent (4 percent of all adults and 16 percent of all renters) said they would not have anywhere to go if they had to move out of their home because they could no longer make their rent payments. (See the "Housing" section of this report for more on evictions).

Those who were laid off in the 12 months before the survey were more likely to have difficulty meeting their regular monthly expenses. Forty-five percent of adults who were laid off in the prior year were unable to pay their bills in full or would have been unable to do so if faced with an unexpected $400 expense, versus 24 percent of those who were not laid off.

Differences in ability to pay bills among those who were laid off differed substantially across education levels. Among those who were laid off, more than 6 in 10 with a high school degree or less were unable to pay their bills in full or would have been unable to do so if faced with an unexpected $400 expense, compared with 24 percent of adults with at least a bachelor's degree.

Black and Hispanic adults who were laid off were also less well positioned to handle an additional financial setback compared to the overall population of laid-off workers (figure 19). Among laid-off Black workers, 64 percent were unable to pay their bills in full or would have been unable to do so if faced with an unexpected $400 expense, compared with 45 percent of all laid-off adults.

A number of interrelated factors, including differences in wages earned at different education levels, discrimination, or differences in credit access, could have contributed to this difference. (See the "Education" section of this report for a discussion of education, box 2 on "Racial and Ethnic Discrimination" for a discussion of discrimination, and the "Banking and Credit" section for differences in credit access.)

Some financial challenges, such as a job loss, require more financial resiliency than would an unexpected $400 expense. One common measure of financial resiliency is whether people have savings sufficient to cover three months of expenses if they lost their primary source of income. Fifty-five percent of people said they had set aside money specifically as emergency savings or "rainy day" funds. However, those who experienced a layoff may have dipped into those funds or not had them in the first place (see box 1). Forty percent of adults who were laid off in the past 12 months could not cover three months of expenses by any means were they to lose their job or government benefits. Among adults who were not laid off, a lower share (28 percent) could not cover these expenses.

Health-Care Expenses

Out-of-pocket spending for health care is a common unexpected expense that can be a substantial hardship for those without a financial cushion, particularly during a global pandemic threatening both families' health and financial stability. As with the financial setbacks discussed earlier, many adults were not financially prepared for health-related costs at the time of the survey.

Seventeen percent of adults had major, unexpected medical expenses in the prior 12 months, with the median amount between $1,000 and $1,999. Sixteen percent of adults had debt from their own medical care or that of a family member, potentially from more than a year ago. Moreover, millions of Americans had contracted COVID-19, and 6 percent of all adults paid out-of-pocket for COVID-19-related medical care.

Though many adults went without medical care because they couldn't afford it, the COVID-19 pandemic added another reason to go without care. Twenty-three percent of adults went without medical care due to an inability to pay. Even more adults, 30 percent, delayed or did not receive care because of safety concerns or difficulty accessing care due to COVID-19. Overall, more than 4 in 10 adults delayed or skipped treatments due to COVID-19 concerns, went without medical care due to inability to pay, or both.

Those who went without medical care due to inability to pay went without a variety of different types of care. Dental care was the most frequently skipped, followed by visiting a doctor (figure 20). Some people also reported skipping prescription medicine, follow-up care, or mental health visits. Going without mental health care may have been particularly difficult due to the pandemic, including for those who have suffered from addiction and face pandemic-related stressors that may lead to substance abuse.²⁹

There was a strong relationship between family income and individuals' likelihood of skipping medical care for cost reasons. Among those with family income less than $50,000, 35 percent went without some medical care because they couldn't afford it. In 2020, 19 percent of adults with income between $50,000 and $100,000, and 8 percent of adults making $100,000 or more, went without care.

Ability to afford health care may contribute to the finding that, as family income rises, the likelihood a person reported being in good health increases substantially. Among those in families with income less than $50,000, 78 percent reported being in good health, compared to 93 percent for those in families with income of $100,000 or more.³⁰

Health insurance is one way that people can pay for routine medical expenses and protect against the financial burden of large, unexpected expenses. In 2020, 90 percent of adults had health insurance, largely unchanged from 2019. The majority of adults had health insurance through their employers. However, many adults lost jobs in 2020 and may have also lost health insurance. Nearly one in five adults who had been laid off in the past 12 months were uninsured as of November 2020.

 

References

 

 28. However, it is possible that some who would not have paid with cash or its equivalent still had access to $400 in cash. Instead of using that cash to pay for the expense, they may have chosen to preserve their cash as a buffer for other expenses (see box 3 from the Report on the Economic Well-Being of U.S. Households in 2019, Featuring Supplemental Data from April 2020). Return to text

 29. As evidence of this pattern, the COVID-19 pandemic appears to have accelerated increases in drug overdose deaths, with synthetic opioids being the primary driver; see Centers for Disease Control and Prevention, "Health Alert Network Advisory HAN00438," December 17, 2020, https://emergency.cdc.gov/han/2020/han00438.asp. Return to text

 30. This relationship also holds if focusing only on adults of different income levels within the same age range. Return to text