National study: finances improving, emergency funds lacking
A large percentage of households do not have enough to cover an unexpected $400 expense

By Eileen Mozinski Schmidt - Special to Conley Media

June 14, 2019

American households have improved in financial security in the last year as the economy has grown, according to a new federal study.

But a large percentage do not have the savings to cover a $400 emergency.

It is all part of the varied picture painted by the “Report on Economic Well-Being of U.S. Households in 2018,” released late last month by the Federal Reserve Board, the result of a survey of 11,000 people across the nation.

The study reported that the 2018 results were “largely positive” and that “many families have experienced substantial gains” since the start of the survey in 2013.

When asked about their economic well-being, 75 percent of U.S. adults said they were “doing okay” or “living comfortably” — up 12 percentage points from 2013, when the survey began, according to the report.

But an unexpected expense of a few hundred dollars would still be a setback for many, with 27% of respondents reporting they would need to borrow or sell something to cover $400 or more. And 12% said they could not cover such an expense.

The results, although not broken down by state, would generally hold true for Wisconsin households, said Avik Chakrabarti, an associate professor in the college of economics at the University of Wisconsin-Milwaukee.

Other ways individuals would cover a $400 expense
Source: “Report on the Economic Well-Being of U.S. Households in 2018” by the Federal Reserve Board, at

While the number of households that would have difficulty covering a $400 expense has been shrinking, Chakrabarti said it is true that “a significant part of the population” remains without quick access to such resources.

“This is a credible number as it is easy to cross check; that people borrowed funds to meet their needs,” he said, adding that it is possible some may be opting to invest all of their cash for a higher return.

But households without access to such resources, how should they look to set up a fund for covering unexpected costs? Kim Rodeman, a credit counselor and with the Consumer Credit Counseling Service of Greater Milwaukee, recommends establishing an “expense fund” rather than “emergency fund.”

“An expense fund should be very specific both in scope and dollar amount. A generic savings account or even emergency fund tends to be too flexible,” said Rodeman in an email.

“Most people mean well when they open these accounts, but then they often end up spending the money quickly rather than letting the money build up for specific purposes,” he wrote.

Rodeman offered the following tips to creating a healthy expense fund:

■ A balanced budget is required first before starting the fund, otherwise users will be forced to use the fund for monthly living expenses.

■ Think of the fund as a self-imposed tax. It should never be used for monthly living expense like food, housing, child care, transportation, credit card or loan payments.

■ The fund should be designated for specific periodic purposes, like auto repair, home maintenance, holiday spending, travel and future financial goals like a wedding or down payment on a car or house.

■ Expense fund contributions should come off the top of earnings each pay period and deposited into a separate account if possible, with no easy debit card access.

■ Make a list of acceptable uses for the fund. Add the annual costs together and divide by 12 if paid monthly or 26 if paid every two weeks. The result will be the expense fund contribution that must be deducted each pay period.

“An expense fund will not work perfectly for all situations, but an expense fund will help to minimize the use of credit when periodic and emergency expenses arise,” Rodeman said.

Economic well-being of U.S. households in 2018

To read more about the Federal Reserve Board report, visit