[wilg]

I somehow read this article the first time without realizing it's totally wrong.

Here's the direct quote from the original government report [1]:

> If faced with an unexpected expense of $400, 61 percent of adults say they would cover it with cash, savings, or a credit card paid off at the next statement—a modest improvement from the prior year. Similar to the prior year, 27 percent would borrow or sell something to pay for the expense, and 12 percent would not be able to cover the expense at all.

That means 39% of people say they either cannot pay or must sell something or borrow for it. Representing that as "40% of Americans can't come up with $400 in an emergency" is perfectly fair in my view.

[1] https://www.federalreserve.gov/publications/files/2018-repor...

[leereeves]

This seems to hang on the definition of "come up with $400".

To me that includes being able to sell or borrow something, but clearly the interpretation varies.

[WalterBright]

Many people have no cash, despite not being poor at all. All their money is tied up in assets, and they borrow for living expenses.

A typical example is someone with a mortgage. His mortgage debt is probably quite a bit higher than his "cash", and so any cash he spends is effectively borrowed from the mortgage company.

This means the answer to the survey question depends on one's frame of reference with regard to how finance works, and so I wouldn't take the results very seriously.

[WalterBright]

Let's put it another way. Suppose you have a $100,000 mortgage on which you're paying 6% interest. You have a savings account with $2,000 in it that pays 2% interest.

The savings account is costing you 4% per year.

Faced with this, one is better off putting extra cash into paying down the mortgage rather than in a savings account. It puts one in a "cash poor" position, which is not the same as being poor.

[flukus]

> Faced with this, one is better off putting extra cash into paying down the mortgage rather than in a savings account.

Cash poor means no easily accessible source of cash, it doesn't refer to the amount of money in your wallet. In your scenario you can access that cash again by jumping onto the banks website (or even visiting the bank) and moving it to your everyday account.

[WalterBright]

I used the term cash poor correctly for the scenario where you used your savings account to buy down the mortgage a bit. It's not quite so easy to increase the mortgage amount, it would depend on what the terms are if you are late or underpay a mortgage payment. If the terms are good, it is one way to recover the cash for an emergency.

[dvfjsdhgfv]

It seems logical to pay off debts as soon as you can as they're expensive. However, in your example, if I use that $2,000 to pay down (a tiny bit of) my mortgage, I put myself in a dangerous position by not being able to come up with some extra cash in case of emergency. I hope most people with mortgages wouldn't do that.

[WalterBright]

It all depends on one's risk tolerances are and what other options for obtaining money there are (like being late or underpaying the next mortgage payment).

Keep in mind that taking on a mortgage itself is a risky move, as people found out in 2008.

BTW, even paying a few dollars extra a month on a 30 year mortgage can be surprisingly effective, since nearly all the early payments are interest, not principal.

[masonic]

Taken literally, they claim that zero would use a debit card, which I find unbelievable. I don't think their universe of responses was well thought out.

[thaumaturgy]

Credit cards that offer rewards muddies up the waters here a lot. In that case, it's smarter to put the $400 on the card (and pay it off before paying interest) for the 1.5% discount or the air miles or whatever.

[perennate]

I don't believe it muddies things at all. A sub-quote from wilg's quote:

> 61 percent of adults say they would cover it with cash, savings, _or a credit card paid off at the next statement_

If some of the other 39% pay with a credit card, they are saying they would carry a balance and pay interest.

[olliej]

If you’re on the bottom rung I’m guessing your interest rate is >20%, (the max is apparently 29.9%). Divide by 12 and one month of interest rate is as much, if not more, than 1.5% cash back.

Using debt to save money depends on starting with a reasonable amount of money.

[ac29]

> put the $400 on the card (and pay it off before paying interest)

Depending where you are in the credit cycle, it could be ~30-50 days before incurring any interest.

[olliej]

that "without interest" bit is not dependent on where you are in the cycle: it's 30-50 days from the last point of zero balance.

And of course 30 days without interest is basically "you pay it off in a months time".

I realized that another part of my problem with this column is of course that "using debt" for many people means a payday loan, which seem to be forever relabelling their "service" to avoid being called a 30%/week credit line.

[robjan]

When you pay your credit card, it clears the balance on a first in first out basis. So if I spend 1k today then 1k in 30 days time, I only have to pay 1k to clear the statement balance and avoid paying interest.