Here's How Many Americans Would Struggle to Pay a $400 Emergency Expense

A new Federal Reserve survey shows the current state of many in the American economy.

More than two-thirds of Americans with incomes of less than $40,000 say they would sell something or borrow money in the event of a $400 emergency expense, according to a new survey by the Federal Reserve.

On Wednesday, the Federal Reserve released its second "Survey of Household Economics and Decisionmaking," which looks at the economic health of American households and potential risks to their well-being.

A total of 5,896 people completed the survey. There was an oversample of low-income individuals, in which 2,726 respondents earning less than $40,000 were randomly selected to ensure sufficient coverage, with 1,634 respondents from the lower-income oversample completing the survey. In addition, 1,710 of those who completed the survey were re-interviews from 2013 and 2,552 were new interviews.

The report found that only 45 percent of those surveyed had emergency or rainy-day funds to cover their expenses for three months, and 53 percent said they could handle a hypothetical emergency that costs $400 by using cash, money in checking or savings accounts, or a credit card they would pay in full on their next statement.

The latter number is slightly higher than the number of people surveyed in last year's report, which showed 48 percent of people could handle the expense through the same means.

Big gaps emerge when you break down respondents by income and race. While 56 percent of the middle-income group surveyed and 73 percent of those earning more than $100,000 said they could pay for the expense with cash or its functional equivalent, only 31 percent of those who have a household income of less than $40,000 could do the same. And just 37 percent of Hispanic respondents and 33 percent of black respondents say they could pay for an emergency this way. Conversely, 59 percent of white respondents said they could cover an emergency using cash or its functional equivalent.

Among those who would pay for expenses without having money immediately prepared, 14 percent said they simply couldn't cover the expense, while others would pay with a credit card that they would pay back over time, borrow money from friends or family, sell something, or take out a payday loan.

Payday lending has recently come under scrutiny, with detractors saying that low-income users often find it difficult to pay back the loans. In March, the Consumer Financial Protection Bureau announced proposals to crack down on payday lenders.

Health emergencies are the most likely economic hardship to hit people, with 37 percent of those surveyed saying their household faced one in the past year.

The fear of not being able to afford expenses also appears to have an effect on what kind of health care people use. One quarter of respondents did not see a dentist in the past 12 months because they did not think they could afford it, 13 percent went without prescription medicine, and 11 percent went without seeing a specialist. In total, 31 percent of respondents said they went without at least one of these expenses because they could not afford it.

Not receiving proper medical care was largely correlated to income level, with 45 percent of those earning less than $40,000 saying they had gone without some medical treatment in the past 12 months, while 31 percent of those in the middle-income group said the same. Only 16 percent of those earning more than $100,000 said they went without some sort of medical treatment.

Similarly, 47 percent of those who could not cover a $400 emergency using cash or its functional equivalent avoided treatment because of the cost, compared to just 17 percent of those who said they could cover the emergency.

While slightly more people may be able to cover emergencies than last year, those on the bottom end of the spectrum still live in a great amount of insecurity in the case of a financial emergency.