My guess is that you’ve heard that famous result from a recent Federal Reserve survey of Americans: Four in 10 adults in 2017 would either borrow, sell something, or not be able pay if faced with a $400 emergency expense. That’s the exact wording of the Federal Reserve Board’s report of the results of its survey.

John Hickenlooper, a former Democratic governor of Colorado, cited this finding in his Wall Street Journal op/ed titled “I’m Running to Save Capitalism,” May 5, 2019 (May 6 print edition.)

It’s understandable that Hickenlooper wrote, “Forty percent of Americans in 2017 didn’t have enough savings to cover a $400 medical emergency or car repair, according to the Federal Reserve.” It’s understandable, but it’s also incorrect. Both Hickenlooper and the Fed blew it.

Cato Institute economist Alan Reynolds points that out today. He notes that the Fed didn’t ask whether people had enough savings to pay a $400 emergency bill. It asked how people would pay it.

Reynolds went and looked at the actual survey question. Here it is, as reported in the Fed’s Appendix B:

Question EF3. Suppose that you have an emergency expense that costs $400. Based on your current financial situation, how would you pay for this expense? If you would use more than one method to cover this expense, please select all that apply.

Check the results as reported in the Appendix or as reported by Reynolds. (He reproduces their table.) 36 percent of people answered “Pay it on my credit card and pay it off in full at the next statement.” That would be my option: I want the air miles. 50 percent of people answered “With the money currently in my checking/savings account or with cash.” We can’t simply add these two numbers to get 86 percent because the survey, as noted, gave people the option of using more than one method.

Moreover, notes Reynolds, the Fed asked a follow-on question:

Question EF5B. How would a $400 emergency expense that you had to pay impact your ability to pay your other bills this month?

85 percent answered “I would still be able to pay all of my other bills in full.”

That gives a little different impression, n’est-ce pas?

Reynolds sums up:

There are many credible ways to measure economic well-being (such as real after-tax income and/or wealth), but giving a few thousand people a multiple-choice exam about how they might prefer to pay an unexpected $400 expense is not one of them.


What a radical idea! If you want to know something about people’s economic well-being, ask them their net worth.