Board of Governors of the Federal Reserve System

Expenses

The share of adults who would cover a relatively small emergency expense using cash or its equivalent dropped back down to the level in 2019, before the pandemic. The share of adults who said they were able to pay all their bills in full also declined to the level last seen in 2018. Most adults said that the prices they paid had increased over the prior year and a majority adjusted their spending in response to higher prices.

Bills and Regular Expenses

To understand how people were handling their regular household expenses, the survey asked about their ability to pay their monthly bills. As of October 2022, 82 percent of adults said they expected to be able to pay all their bills in full that month—down 4 percentage points from 2021, and near the level last seen in 2018.

Lower-income adults were less likely to be able to pay all their bills. In the month of the survey, 67 percent of adults with a family income less than $25,000 expected to pay all their bills in full, compared with 94 percent of adults with a family income of $100,000 or more (table 8). In addition, Black and Hispanic adults were less likely than White or Asian adults to be able to pay all their bills in full in October 2022.

Table 8. Able to pay current month's bills in full (by family income and race/ethnicity)

The most common type of bill people did not expect to pay in full was a credit card bill. Nine percent of adults said they did not expect to pay a credit card bill in full that month. Other bills, such as a water, gas or electric bill (6 percent) or a phone or cable bill (6 percent), were somewhat less common responses.

Price increases can make it more difficult to keep up with bills and expenses. In October 2022, nearly all adults said the prices they paid had increased at least somewhat in the prior 12 months on one or more types of purchases. Over 90 percent of adults said that the prices they had paid for food and gasoline had increased, and 85 percent said prices for utilities had increased (figure 18).²³

Although fewer people said their rent or mortgage increased than said they experienced rising prices for other expenses, the prevalence of housing cost increases differed substantially by homeownership status. Renters were more likely than homeowners to say that these housing costs had gone up. Sixty-four percent of renters said their rent had increased over the prior 12 months, including 30 percent who said it had increased a lot. In contrast, 22 percent of homeowners said their mortgage had increased in the past year, with 7 percent saying it had increased a lot.

Consistent with the widespread experience of higher prices over the prior year, most adults said that their family budgets had been affected by price increases. Eighty-five percent of adults said their family budgets had been affected at least somewhat by price increases, including 54 percent of adults who said their budgets had been affected a lot by price increases on at least one type of expense. Adults with income under $100,000 were more likely to say that their family budget was affected a lot by rising prices, compared with higher-income adults (table 9). Parents living with children under age 18, Black and Hispanic adults, and those with a disability were also more likely to say their budget had been affected a lot by higher prices.

Most people took some action in response to higher prices. The most common actions were spending changes, including using less of a product or stopping using it (66 percent), switching to a cheaper product (64 percent), or delaying a major purchase (49 percent) (table 10). Just over one-half of adults reported they reduced savings (51 percent). Increasing borrowing was less common, as were activities to generate additional income, such as working more or asking for a raise.

Table 9. Family budget affected a lot by price increases in the prior 12 months (by demographic characteristics)

Table 10. Actions taken in response to higher prices in the prior 12 months

Adults who had less margin between their spending and their income appeared more likely to take action in response to higher prices. Among adults who said their spending exceeded their income in the month before the survey, 93 percent took at least one action in response to higher prices. Among those whose spending was less than their income, a lower 76 percent took at least one action.

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, 63 percent of all adults in 2022 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"). The remainder said they would have paid by borrowing or selling something, or said they would not have been able to cover the expense.

The share who would pay using cash or its equivalent was down 5 percentage points from 68 percent in 2021, and back at the level in 2019 (figure 19).²⁴ This decrease may reflect some reduction in the savings buffers that households had accumulated because of the pullback in spending and fiscal relief measures that boosted saving during 2020 and 2021.²⁵

Some groups saw larger changes in the share who would cover a $400 emergency expense with cash or its equivalent. In 2022, parents saw a drop of 7 percentage points in this measure to 57 percent. This decline reversed the 7 percentage point increase in the share of parents who would cover a $400 expense with cash or its equivalent that had been seen in 2021. By comparison, adults not living with their own children under age 18 saw a smaller increase of 3 percentage points in 2021, and a smaller drop in 2022 of 4 percentage points. One possible reason behind these larger changes for parents is that some parents received payments from the temporary expansion of the Child Tax Credit (CTC) in 2021 that were no longer in effect at the time of the 2022 survey.²⁶

Among those who would not have covered a $400 expense completely with cash or its equivalent (37 percent of adults), most would pay some other way, and some said that they would be unable to pay the expense at all. 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. Thirteen percent of all adults said they would be unable to pay the expense by any means (table 11), up from 11 percent in 2021 and 12 percent in 2020 and 2019.

Table 11. Other ways individuals would cover a $400 emergency expense

Some of those who would not have paid an unexpected $400 expense with cash or its equivalent likely 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. To explore this potential difference between how people would pay for a $400 expense and whether they could pay for it with cash or the equivalent, the 2022 SHED included a new question asking what is the largest emergency expense people could handle using only savings. Sixty-eight percent of adults said they could pay an expense of at least $500 using only their current savings (table 12). This is a somewhat larger share than the 63 percent of adults who said they would pay an unexpected $400 expense with cash or the equivalent, suggesting that some people do choose to pay with other methods, even if they have cash savings available to them.²⁷

Table 12. Largest emergency expense individuals could handle right now using only savings

Some financial challenges, such as a job loss, require more financial resources 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. In 2022, 54 percent of adults said they had set aside money for three months of expenses in an emergency savings or "rainy day" fund—down from a high of 59 percent of adults in 2021.

For those who did not set aside money for this purpose, some would have dealt with a loss of their main source of income by borrowing, selling assets, or drawing on other savings. Sixteen percent of all adults said that they could have covered three months of expenses in this way. Thirty percent of adults indicated they could not cover three months of expenses by any means.

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. As with the financial setbacks discussed above many adults were not financially prepared for health-related costs at the time of the survey.

Twenty-three 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 (not necessarily from the past year).

Twenty-eight percent of adults went without some form of medical care in 2022 because they could not afford it.

Many went without medical care in the prior 12 months because of the cost. Twenty-eight percent of adults went without some form of medical care in 2022 because they could not afford it, up from 24 percent in 2021 but below the 32 percent seen in 2013 (figure 20). Dental care was the most frequently skipped, followed by visiting a doctor (table 13). Some people also reported skipping prescription medicine, follow-up care, or mental health visits. The increase in this measure may, in part, reflect consumer responses to inflation as medical care is an area where people can save money by cutting back on spending.

Table 13. Forms of medical treatment skipped because of cost in the prior 12 months

The likelihood of skipping medical care because of cost was strongly related to family income. Among those with family income less than $25,000, 38 percent went without some medical care because they could not afford it, compared with 11 percent of adults making $100,000 or more.

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 $25,000, 75 percent reported being in good health, compared with 91 percent for those in families with income of $100,000 or more.

Health insurance is one way that people can pay for routine medical expenses and protect against the financial burden of large, unexpected expenses. In 2022, 91 percent of adults had health insurance, similar to 2021. Those without health insurance were more likely to forgo medical treatment because they couldn't afford it. Among the uninsured, 42 percent went without medical treatment because they couldn't afford it, compared to 26 percent among the insured.

Hardships from Natural Disasters

Those without a financial cushion may face unique and particularly severe challenges in the event of natural disasters. Natural disasters may cause disruptions to people's financial lives by affecting their ability to work, displacing people from their homes, and resulting in unexpected property damage.

In 2022, 13 percent of adults were directly affected by a natural disaster during the prior 12 months.²⁸ Those who were affected experienced one or more of the following five events as the result of a natural disaster or severe weather event: (1) property damage, (2) an income loss or work disruption, (3) the injury or death of a family member or close friend, (4) a temporary evacuation, or (5) longer-term displacement from home. The two most common ways that people were affected by natural disasters were property damage and an income loss or work disruption (figure 21).

The likelihood of being affected by natural disasters varied across demographic groups. Adults with lower income were more likely to be affected by natural disasters than those with higher income (table 14). Nineteen percent of adults with family income below $25,000 reported any disaster-related hardship, compared with 9 percent of adults with family income of $100,000 or more. Compared to those living in other census regions in the U.S., adults living in the South were more likely to report they were affected by a natural disaster in the prior 12 months. Black or Hispanic adults were also more likely to be affected than White or Asian adults.²⁹

Table 14. Disruptions from natural disasters in the prior 12 months (by family income, race/ethnicity, and census region)

To reduce their financial risks from natural disasters, some people undertook mitigation activities such as improving their property or purchasing additional insurance. Those who had been affected by a natural disaster in the prior 12 months were more likely to report they had taken action to reduce risks from natural disasters (table 15).³⁰ Mitigation activities also differed by homeownership status. Renters were about twice as likely to investigate other places to live than homeowners, whereas homeowners were far more likely to improve their property to mitigate the risks of disasters. Among all adults, a smaller share purchased additional insurance to mitigate their natural disaster risk, compared with the shares who investigated other places to live or improved their property.

Table 15. Natural disaster mitigation activities (by whether affected in the prior 12 months and homeownership status)

 

References

 

 23. Consumer Price Index (CPI) data from the Bureau of Labor Statistics showed that in October 2022, gasoline costs were up by 17.5 percent year-over-year and food costs were up by 10.9 percentage points (see U.S. Bureau of Labor Statistics, "Consumer Price Index–October 2022," news release, November 10, 2022, https://www.bls.gov/news.release/archives/cpi_11102022.pdf). A difference between the CPI and the SHED results reported here is that the SHED focuses on the share of people who say they experienced increases in prices rather than the specific amount of increases. Return to text

 24. Since 2013, when this question was first asked, and the 2022 survey, median household incomes increased as did consumer prices. To check how changes in price levels affect responses to this question, the 2022 survey asked one-fifth of respondents how they would handle a $500 expense instead. Changing the threshold only altered the share who would pay in cash by 0.5 percentage points, suggesting that shifts in the price level have not materially affected the trend in this series. The discussion in this section only includes those respondents who are asked the question with the $400 threshold. Return to text

 25. For details on the increase in savings during the pandemic, see Aditya Alandangady, David Cho, Laura Feiveson, and Eugenio Pinto, "Excess Savings during the COVID-19 Pandemic," Finance and Economics Discussion Series Notes (Washington: Board of Governors of the Federal Reserve System, October 21, 2022), https://doi.org/10.17016/2380-7172.3223; and for details on the effects of relief measures on incomes through the pandemic, see Jeff Larrimore, Jacob Mortenson, and David Splinter, "Earnings Business Cycles: The Covid Recession, Recovery, and Policy Response," Finance and Economics Discussion Series 2023-004 (Washington: Board of Governors of the Federal Reserve System, 2023), https://doi.org/10.17016/FEDS.2023.004. Return to text

 26. In 2021, the most common way parents used their CTC payments was saving them, potentially improving their ability to handle unexpected expenses. For a discussion of the expansion of the Child Tax Credit in 2021 and the ways parents used these payments, see the "Income" section in Board of Governors of the Federal Reserve System, Economic Well-Being of U.S. Households in 2021(Washington: Board of Governors, May 2022), https://www.federalreserve.gov/publications/files/2021-report-economic-well-being-us-households-202205.pdf. Return to text

 27. See box 3 from Board of Governors of the Federal Reserve System, Report on the Economic Well-Being of U.S. Households in 2019, Featuring Supplemental Data from April 2020(Washington: Board of Governors, May 2020), https://www.federalreserve.gov/publications/files/2019-report-economic-well-being-us-households-202005.pdf. Return to text

 28. Because natural disasters can have long-lasting effects on people, some may also be continuing to feel the repercussions of natural disasters that occurred more than 12 months ago. Return to text

 29. Income differences and differences in the likelihood of living in different areas of the country could contribute to some of the differences by race and ethnicity in the likelihood of experiencing disruptions from natural disasters. However, after controlling for income and census region (or state), Black and Hispanic adults were still more likely to be affected by natural disasters in one of these ways than White adults. Return to text

 30. This could relate to how those who recently experienced a natural disaster assess future risks. In a separate question, those who had been affected by a natural disaster in the prior 12 months were more likely to say they expected their risk of a natural disaster to be higher in five years (46 percent), compared with adults who had not been affected (32 percent). Overall, 34 percent of adults expected risks of a natural disaster to increase, and 62 percent expected risks to be about the same in five years. Return to text