LendingClub: Why $1,400 is a “new” emergency expense
For years, $400 served as a shorthand for the precarious state of the American consumer’s financial health, whether they could afford to meet an unexpected emergency expense.
The number has been firmly entrenched in the discussion of this country’s finances, including in the annual economic well-being reports released each year by the Federal Reserve.
Now that seems a long way off.
The way Anuj Nayar, head of financial health at LendingClub, said he sees it, that number falls woefully short of the reality we face today. It turns out, as found in joint research by his company and PYMNTS, that unplanned emergencies actually cost consumers an average of $1,400.
Nayar noted that inflation these days has driven up the cost of all sorts of expenses to the point where even buying a replacement tire or two – to fix a common puncture – can easily cost several hundred. of dollars. A visit to the emergency room can cost thousands of dollars.
It’s now well established that the paycheck-to-paycheck economy encompasses about 60% of individuals, all of whom have little or nothing to save once they’ve paid the bills each month.
Read more: Study: 29% of consumers usually renew their credit card balances
More consumers than ever are poised to meet those expenses without too much difficulty — and slip into the realm of the fight to make the monthly nut. This emergency spending could serve as a tipping point, Nayar said.
Savings cushions are quickly depleted, where just paying for gas and food becomes an ongoing and growing challenge. No less than 13% of consumers have, in recent months, spent more money than they have received (equivalent to 33.5 million consumers).
“The only way to bridge that gap is to use credit or dip into savings, and that pushes you further into the paycheck-to-paycheck environment…Any additional bump in the road can push you into that category,” he said. said.
In the current environment, he said, more than half of consumers use cash to pay for emergency expenses, and about 23% use credit (but still pay off balances in full each month). But another 18% use the card and transfer it to a long-term revolving credit balance.
“It’s hard to deal with all of this when your savings rates go down and the rates on credit card debt go up,” Nayar said.
Read more: Paycheck-to-paycheck consumers are 3 times more likely to incur credit card debt
And while there are signs that inflation may be peaking, anyone can guess how the next few months (and the all-important holiday shopping season) will play out.
Regardless of the inflationary image, here are some silver linings. FinTechs and platforms (LendingClub among them) can help individuals regain a certain financial balance and move towards better financial health. Turning debt into installment loans, Nayar offered as an example available on his company’s platform, may be a more palatable (and affordable) option than opting to continue paying high-interest revolving fees.
“Technology is being used as a way to help our members and ordinary Americans get back on a path where they can start rebuilding the cushion to save,” Nayar said, adding “people don’t need to keep turning to the same old solutions they’ve been using for decades.
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