Could You Raise $2,000 in a Pinch?
Or would you feel pinched?
If your roof sprung a leak or your dentist said you needed a crown, would you be able to write a check to cover such an emergency?
Either might cost $2,000, but about half of Americans say they couldn’t come up with that much cash within 30 days.
That’s according to a paper published by the National Bureau of Economic Research, using data from the 2009 TNS Global Economic Crisis survey aimed at showing the extent of financial weakness in the U.S. and other nations.
The survey asked, “If you were to face a $2,000 unexpected expense in the next month, how would you get the funds you need?” As reported in the Wall Street Journal, only 25% of American respondents said they could gather that much money in a month, while another 25% said they were “probably” able and 28% said they were “certainly unable” to do so.
The $2,000 figure “reflects the order of magnitude of the cost of an unanticipated major car repair, a large copayment on a medical expense, legal expenses or a home repair,” the authors wrote. Specifically, they chose $2,000 as the probable cost of replacing your car’s transmission.
Most respondents said they’d cope by dipping into savings, borrowing from family and friends, using credit cards, seeking payday loans, pawning their belongings or selling some possessions. “Taken together with those who would sell their homes,” the authors said, nearly half of all respondents “are living very close to the financial edge.”
If half of Americans can’t come up with two grand in an emergency, imagine their reaction to our advice that you maintain as much as two years’ worth of spending in cash reserves. For most Americans, $2,000 wouldn’t even cover costs for much more than a month.
To find out how much you should have in your emergency fund, talk with a financial planner.