The $500 Challenge
A few years ago I wrote about the $400 challenge: the reality that 40% of American families couldn't afford a $400 emergency expense and would have to borrow money or sell items to cover it. Now it's being referred to as the $500 challenge. Well, I guess it makes sense with inflation the past few years that the challenge is 25% higher now. 🙄
The topic of the $500 challenge popped up in my newsfeed this week. The source of it is actually from last August, though. A survey by SecureSave, a company founded by financial advisor/personality Suze Orman, reported that 63% of US employees are unable to cover a $500 emergency expense. Example news coverage: NBC News, 31 Aug 2023.
"Well that's what credit cards are for," you might scoff. "Just put the charges on credit and pay them off over the next few months."
There are two huge problems with that reasoning. One, a lot of families live paycheck to paycheck. And that describes more than just "the poor". Many families in the middle- and even upper-middle class are living paycheck to paycheck. (More about the upper-middles in a separate blog.) For them there's no "Just charge it and pay it off over the next few months." Their budgets are already stretched, so an unexpected one-time expense means long-term consequences. I've written about how my parents went into debt that took decades to pay off, for example. Huge problem number two, it's so easy for an emergency to add up to $500 of costs nowadays it's not a matter of if you'll face an unexpected $500 expense, or even when an "Oh, shit!" thing happen, but how many times "Oh, shit!" will happen.
A few examples:
The topic of the $500 challenge popped up in my newsfeed this week. The source of it is actually from last August, though. A survey by SecureSave, a company founded by financial advisor/personality Suze Orman, reported that 63% of US employees are unable to cover a $500 emergency expense. Example news coverage: NBC News, 31 Aug 2023.
"Well that's what credit cards are for," you might scoff. "Just put the charges on credit and pay them off over the next few months."
There are two huge problems with that reasoning. One, a lot of families live paycheck to paycheck. And that describes more than just "the poor". Many families in the middle- and even upper-middle class are living paycheck to paycheck. (More about the upper-middles in a separate blog.) For them there's no "Just charge it and pay it off over the next few months." Their budgets are already stretched, so an unexpected one-time expense means long-term consequences. I've written about how my parents went into debt that took decades to pay off, for example. Huge problem number two, it's so easy for an emergency to add up to $500 of costs nowadays it's not a matter of if you'll face an unexpected $500 expense, or even when an "Oh, shit!" thing happen, but how many times "Oh, shit!" will happen.
A few examples:
- Even a minor illness that requires medical care can cost several hundred dollars to treat. This happened to my spouse a few years ago. Yes, we have insurance; we still paid hundreds out-of-pocket after insurance. And it was a minor illness.
- Got pets? They get sick, too. When a relative's cat disappeared and was found a few weeks later acting strangely, they rushed out to the vet for a checkup. $500 later it turned out the cat's just pregnant.
- When an appliance breaks it can easily cost $500 to replace or repair. And that's if it doesn't cause any damage when it breaks, like water spills from a busted water heater that damage flooring and drywall.
- Car repairs easily go past $500. Each of the last two repairs on our Nissan, a $28k car when purchased new in 2011 (read: not fancy), cost over $1,400. Insurance repairs? Yeah, $500 deductible. Plus the costs of getting around without a car while the car's in the shop. Just replacing two tires on a fancier car costs can cost over $500.