47 Percent Of Americans Can’t Afford An Unexpected $400 Expense

via Flickr user (cc) Nohodamon

During 2016 election cycle we often hear candidates say they’ll “fight for the middle class.” It’s a statement that’s usually greeted with cheers, because according to the Pew Research Center, 87 percent of Americans identify themselves as “middle class.” But a startling study by the Federal Reserve found that 47 percent of Americans couldn’t afford an unexpected bill of $400 through either their savings or credit cards. They’d have to pay it by selling something or borrowing money.

One reason for America’s increasing financial fragility is the growth in the income gap. The Pew Research Center says that fewer adults now live in middle-income households (120 million) than upper and lower-income households combined (121 million). But the issue extends beyond income. Debt plays a huge factor as well. Currently, 38 percent of American households carry some debt, averaging more than $15,000 per household.

Many American households that make over six figures are living paycheck to paycheck as well. A study by Lusardi, Tufano, and Schneider found that nearly 25 percent of households making $100,000 to $150,000 a year claim not to be able to raise $2,000 in a month. “A material fraction of seemingly ‘middle class’ Americans also judge themselves to be financially fragile, reflecting either a substantially weaker financial position than one would expect, or a very high level of anxiety or pessimism,” the study says.

American consumer behaviors, financial literacy and saving habits have a lot to do with the rise in financial fragility. In many cases, people see debt as an alternative to saving. Banks have perpetuated the issue by pushing high-interest-rate credit cards on consumers and payday loan centers are popping up on every street corner. As Neal Gabler writes for The Atlantic, “It is ironic that as financial products have become increasingly sophisticated, theoretically giving individuals more options to smooth out the bumps in their lives, something like the opposite seems to have happened, at least for many.”