More Americans can now cover a $1,000 emergency, but it’s still less than half

More Americans can now afford an emergency expense of $1,000, but that goal still remains out of reach for the majority of American households.

About 44% of people in the United States say they would be able to cover that level of emergency expenses without putting them on a credit card or borrowing money, according to a survey published Wednesday by Bankrate of just over 1,000 American adults.

That’s the highest proportion of Americans who said they could handle unexpected bills in the eight years Bankrate conducted the survey, surpassing even 2020 and 2021 levels when federal programs such as stimulus checks , enhanced unemployment benefits and child tax credit payments were in place.

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The increased ability to cover that $1,000 expense could be due to several things: remaining savings from last year’s federal programs, a recovering US economy, and lower unemployment. People are returning to work and wage growth is up, said Greg McBride, chief financial analyst at Bankrate. Fortune.

But not all economic factors come into play. The pandemic has changed Americans’ savings priorities, especially in light of the high unemployment rate seen in 2020. “The pandemic has also underscored the importance of emergency savings, so there’s a greater focus about rebuilding what was lost during the pandemic, but also about accumulating savings for those who hadn’t before,” he says.

Not everyone has a strong savings cushion

Despite a higher number of Americans able to pay for a major unexpected expense using their savings, more than a third would still need to borrow money. About 35% of respondents said they would have to fund the expense using a credit card, personal loan, or taking money from family and friends.

Millennials, ages 26 to 32, were the most likely of any age group to finance an unexpected $1,000 expense with a credit card. Young workers have been primarily affected by income disruptions and unemployment during the pandemic, McBride says. They also had less time than older workers to even start building their savings.

Even among older Americans, however, the current savings cushion is unlikely to last because high inflation makes saving more difficult. “I’m not as optimistic that we’re going to replicate the success of the last 12 months in the next 12 months,” McBride said. Fortune.

Most Americans are also unlikely to still reap the rewards of working remotely as they were when the shutdowns were in place at the start of the pandemic, leading to lower spending on transportation costs and restaurants. . In many cases, this meant that Americans had more money in their budget and found it easier to save more.

“We expected [the pandemic] be short-term, so people weren’t spending, they were saving more,” McBride says. “Two years later, for many households, the money that isn’t being spent on travel, dining out, or going to a concert is simply being spent elsewhere, whether on home renovations or just other necessities. which increase in Cost.”

Americans’ personal savings rate as a percentage of their personal disposable income has already fallen since the historic high of 33.8% in April 2020, reaching 6.9% in November, according to the latest available data from the Bureau of Economic Analysis.

Half of Americans say inflation is eating away at their ability to save

Typically experts recommend that most Americans have between three and six months of living expenses saved.

And while some Americans may have a fully funded emergency savings cushion, it may now be harder to replenish it once it’s been spent. That’s because inflation is starting to eat away at savings rates.

Around 49% of people polled by Bankrate say inflation is causing them to save less, while a third say it has no impact. About 2% of respondents say they were never able to save in the first place.

“Inflation is increasingly stretching the household budget,” McBride says.

“This inflation is very broad,” he adds, saying it significantly affects non-discretionary spending such as food and rent. Grocery food prices have risen 6.5% over the past 12 months while rents have risen about 3.3%, according to the December Consumer Price Index.

If household income growth outpaces inflation — and if inflation comes back down, McBride says then households could really make progress with their savings. But it’s hard to predict and many experts predict that high inflation will persist until 2022.

How to save with runaway inflation

For those looking to save, McBride recommends using loyalty programs and taking full advantage of discounts, coupons and rebates to help keep expenses down. Even using your cash back or that hidden gift card stash helps.

If possible, McBride says, this could be a good opportunity to focus on increasing your income. Ask for a raise or maybe look for a new job. Or, if you have the bandwidth to take on a second job, do on-demand work, even for a short time.

“You can capitalize on this job market where there are millions of vacancies and it can give you that window of time to rebuild your emergency savings or pay off that credit card debt once and for all,” says -he.

However, the best step towards building up savings is always to set up a direct deposit of your salary into a dedicated savings account. “It ensures that the savings happen – it forces you to budget around your take-home pay,” he says, but adds that this can be difficult for many in light of rising costs.

“Now more than ever, you can’t try to save up and wait until the end of the month to see what’s left,” McBride says. “At a time when costs are rising as they are, there is simply no money left. And even when there is, there is no consistency there.

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