The golden age of liquidity comes to an end
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One of the Fed's most notorious financial statistics is its "$400 emergency expense" question. This year, however, the answers to that question show something important.
Why it matters: For the first time since the survey began, the proportion of Americans who say they would cover a $400 emergency expense completely using cash or its equivalent dropped from the previous year.
- That's in large part a function of pandemic-era cash assistance programs ending.
Be smart: It is incorrect to subtract 63% from 100% and declare, as many pundits are wont to do, that the result is the percentage of Americans who don't have enough money to pay a $400 emergency expense.
- That said, the question does shed light on an important facet of overall financial well-being and, generally, how liquid American households are.
- The exact size of the $400 figure doesn't matter: The Fed also asked the same question with a $500 number and got almost identical results.
Between the lines: The largest decline was among parents. The percentage who would use cash for an emergency expense dropped from 64% to 57% after their monthly child tax credit payments expired in 2021.
The bottom line: In 2020 and 2021, most Americans received substantial amounts of cash directly from the government. When that cash stopped flowing in 2022, it stopped being available for emergency use.
