Dealing with Unexpected Expenses

Results from the survey indicate that many adults are not well prepared to withstand even small financial disruptions, though the ability to pay current bills and to handle unexpected expenses has improved markedly since 2013. Despite the positive trends, financial challenges remain, especially for those with less education and for minorities.

Small, Unexpected Expenses

Relatively small, unexpected expenses, such as a car repair or replacing a broken appliance, can be a hardship for many families without adequate savings. When faced with a hypothetical expense of $400, 61 percent of adults in 2018 say they would cover it, using cash, savings, or a credit card paid off at the next statement (referred to, altogether, as "cash or its equivalent")—a 2 percentage point increase from 2017 (figure 10). In 2013, half of adults would have covered such an expense in the same way.

Figure 10. Would cover a $400 emergency expense using cash or its equivalent (by survey year)
Figure 10. Would cover a $400
emergency expense using cash or its equivalent (by survey year)
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Among the remaining 4 in 10 adults who would have more difficulty covering such an expense, the most common approaches include carrying a balance on credit cards and borrowing from friends or family (figure 11). Twelve percent of adults would be unable to pay the expense by any means. Although so many incurring additional costs for a modest expense is disconcerting, it is possible that some would choose to borrow even if they had $400 available, preserving their cash as a buffer for other expenses.11

Figure 11. Other ways individuals would cover a $400 emergency expense
Figure 11. Other ways individuals
would cover a $400 emergency expense
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Note: Respondents can select multiple answers.

While the prior question asks about a hypothetical expense, the survey results indicate that a number of people struggle to pay their actual bills. Even without an unexpected expense, 17 percent of adults expected to forgo payment on some of their bills in the month of the survey. Most frequently, this involves not paying, or making a partial payment on, a credit card bill (table 10). Four in 10 of those who are not able to pay all their bills (7 percent of all adults) say that their rent, mortgage, or utility bills will be left at least partially unpaid.

Table 10. Bills to leave unpaid or only partially paid in the month of the survey


Bill Among adult population Among those who expect to defer at least one bill
Housing-related bills
Rent or mortgage 4 22
Water, gas, or electric bill 6 33
Overall 7 39
Non-housing-related bills
Credit card 7 42
Phone or cable bill 5 32
Student loan 2 12
Car payment 3 19
Other 1 3
Overall 11 67
Unspecified bills 4 25
Overall 17 100

Note: Respondents can select multiple answers. "Unspecified bills" reflects those who said they would not be able to pay bills in full but then did not answer the type of bill.

Another 12 percent of adults would be unable to pay their current month's bills if they also had an unexpected $400 expense that they had to pay. Altogether, 3 in 10 adults are either unable to pay their bills or are one modest financial setback away from hardship, slightly less than in 2017 (33 percent).

Those with less education in particular are less able to handle these expenses. Thirteen percent of adults with a bachelor's degree or more do not expect to pay their current month's bills or would be unable to if faced with an unexpected $400 expense, versus 42 percent of those with a high school degree or less. Racial and ethnic minorities of each education level are even less able to handle a financial setback (figure 12).

Some financial challenges require more preparation and advanced planning than a relatively small, unexpected expense would. One common measure of financial preparation is whether people have savings sufficient to cover three months of expenses if they lost their job. Half of people have set aside dedicated emergency savings or "rainy day" funds. As was the case with smaller financial disruptions, some would deal with a larger shock by borrowing or selling assets; one-fifth say that they could cover three months of expenses in this way. In total, 7 in 10 adults could tap savings, would need to borrow or sell assets if faced with a financial setback of this magnitude.

Figure 12. Not able to fully pay current month's bills (by education and race/ethnicity)
Figure 12. Not able to fully
pay current month's bills (by education and race/ethnicity)
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Health Care Expenses

Out-of-pocket spending for health care is a common unexpected expense that can be a substantial hardship for those without a financial cushion. As with the small financial setbacks discussed above, many adults are not financially prepared for health-related costs. During 2018, one-fifth of adults had major, unexpected medical bills to pay, with the median expense between $1,000 and $4,999. Among those with medical expenses, 4 in 10 have unpaid debt from those bills.

In addition to the financial strain of additional debt, 24 percent of adults went without some form of medical care due to an inability to pay, down from 27 percent in 2017 and well below the 32 percent reported in 2013. Dental care was the most frequently skipped treatment (17 percent), followed by visiting a doctor (12 percent) and taking prescription medicines (10 percent) (figure 13).

Figure 13. Forms of skipped medical treatment due to cost
Figure 13. Forms of skipped
medical treatment due to cost
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There is a strong relationship between family income and individuals' likelihood of receiving medical care. Among those with family income less than $40,000, 36 percent went without some medical treatment in 2018, down from 39 percent in 2017. This share falls to 24 percent of those with incomes between $40,000 and $100,000 and 8 percent of those making over $100,000.

Health insurance is one way that people can pay for routine medical expenses and hedge against the financial burden of large, unexpected expenses. In 2018, 90 percent of adults had health insurance. This includes 57 percent of adults who have health insurance through an employer or labor union and 22 percent who have insurance through Medicare. Four percent of people purchased health insurance through one of the health insurance exchanges. Those with health insurance are less likely to forgo medical treatment due to an inability to pay. Among the uninsured, 38 percent went without medical treatment due to an inability to pay, versus 22 percent among the insured.12




 11. For example, Neil Bhutta and Lisa Dettling estimate in 2016, using the Survey of Consumer Finances, that 76 percent of households had $400 in liquid assets (even after taking monthly expenses into account), which is higher than the 56 percent of adults in the 2016 SHED who say they would cover a $400 expense with cash or its equivalent ("Money in the Bank? Assessing Families' Liquid Savings using the Survey of Consumer Finances," FEDS Notes (Washington: Board of Governors, November 19, 2018), David Gross and Nicholas Souleles first identified the "credit card debt puzzle" in which some households hold both high-interest credit card debt and low-return liquid assets that could be used to pay down those debts ("Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data," Quarterly Journal of Economics 117, Issue 1 (February 2002): 149–85.)  Return to text

 12. Since the survey asks respondents about their current health insurance status, but also asks about whether they missed medical treatments in the previous year, it is possible that some respondents who currently have insurance were uninsured at the point at which they were unable to afford treatment. Return to text

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Last Update: June 14, 2022