The Federal Reserve Board has asked Americans the same question every year since 2013: Can you afford an unexpected expense of $400? That $400 could be anything: a medical bill, car or home repair, a lost freelance gig. In previous years, a majority of Americans could not afford it.
In 2013, 52 percent of respondents said they would not be able to cover this expense. The latest report, released this week, found that 39 percent of the 11,000 adults surveyed said they did not have enough cash or savings to cover the expense (27 percent would have to borrow money or sell something, and 12 percent would not be able to cover it all).
The $400 measure is a major touchpoint for how families in the United States actually get by week to week, but there are others: Overall, the report concludes that economic well-being is improving. However, it also finds that most of the Americans who are being lifted out of poverty—who can afford an extra $400 now and then, or pay off their monthly bills in full—are white. Here's what this can tell us about the racial wealth gap.
More Whites Report Being Financially 'OK' Than African Americans and Latinxs
The Federal Reserve applauded this minimal progress on Thursday, describing 2018 as "slightly better" than 2017. "We continue to see the growing U.S. economy supporting most American families," Federal Reserve Board Governor Michelle Bowman said in a statement. Still, the report's authors note that another year of economic expansion and low unemployment has done "little to narrow the persistent economic disparities by race, education, and geography."
Two-thirds of African Americans and Latinxs report that they are doing "at least OK" financially, compared to nearly eight in 10 white people. These gaps have persisted, even as overall well-being has improved.
Within this unequal financial landscape, that $400 figure can tell you a lot. A 2018 report from the Urban Institute found that the ability to cover that this expense—along with access to savings or credit, homeownership, and health insurance coverage—means a family faces less economic hardship. Meanwhile, California Senator Kamala Harris cited the statistic on Wednesday while calling for a middle-class tax cut.
What Happens If You Can't Pay $400?
While the question is hypothetical, the situation is not: The report found that one-fifth of adults had "major, unexpected" medical bills to pay last year, and one-fourth of them skipped necessary medical care in 2018 because they were unable to afford the cost.
The $400 represents an expense that's sometimes called a "financial shock." Even these small losses of income can disrupt a family's finances, force them to forgo food or a doctor visit, and reduce their financial security. Research has found that larger proportions of black and Latinx households lack the resources needed to cope with these shocks, due to a host of factors outside their control.
The Federal Reserve report's unexpected expense question does not include race or ethnicity. But there are other important data points, which show that people of color face higher barriers to financial security: African-American and Latinx people are more likely to be denied credit card applications, or go without a bank account, than white people; 19 percent of blacks and 17 percent of Latinxs with a bank account report difficulty accessing funds, compared to 11 percent of whites; blacks and Latinxs are less likely to have retirement savings, receive a raise, or get landlords to make repairs to their apartments. All of this means that, when a financial emergency strikes, people of color in America may end up sacrificing their health to pay it.