Emergency Expenses Break the Bank for Paycheck-to-Paycheck Consumers

The Federal Reserve recently reported that 68% of consumers could afford a theoretical $400 emergency expense.^{1, 2} However, the Fed’s $400 benchmark, which they have not updated to consider inflation, is outdated. PYMNTS Intelligence’s data shows the average unexpected expense costs $1,404 — 3.5 times the Fed’s benchmark.

As of May 2024, inflation sits at 3.3%.³ The impact of inflation on specific expenses is more pronounced. Shelter, electricity and medical expenses still show higher inflation rates. The reality that these are all needs can make it more difficult for consumers to manage their finances. Especially with emergency expenses that pop up.

These are just some of the findings detailed in this edition of “New Reality Check: The Paycheck-to-Paycheck Report,” a PYMNTS Intelligence report. “How Emergency Expenses Impact Consumers Financially” examines the financial lifestyles of U.S. consumers and explores how they manage emergency expenses. It draws on insights from a survey of 2,413 U.S. consumers conducted from May 3 to May 17 and an analysis of other economic data.^{4, 5, 6}

• What’s at Stake
• Key Findings
• Conclusion
• Methodology

What’s at Stake

As of May 2024, 65% of consumers lived paycheck to paycheck, an 8-percentage-point increase in the last year. This share has reached levels not seen since March 2022. The spike is likely largely due to a 32% increase in Generation Z consumers living paycheck to paycheck.

The rise in the share of consumers living paycheck to paycheck has been significant in the last three months. The increase has been particularly sharp among those not struggling to pay their bills. The share of consumers living paycheck to paycheck without issues paying their bills increased from 39% in March 2024 to 44% as of May 2024. Though it has leveled off somewhat, the share of paycheck-to-paycheck consumers struggling to pay bills increased from 19% in March 2024 to 21% in May 2024.

Even if they live comfortably, many consumers are joining the ranks of those living paycheck to paycheck.

Increasing numbers of high-income consumers live paycheck-to-paycheck, possibly due to higher spending. As of May 2024, 50% of consumers earning more than $100,000 lived paycheck to paycheck. This share represents a rise of 9 percentage points since May 2023. The share of consumers who earn between $50,000 and $100,000 per year and live paycheck to paycheck rose from 61% to 68% in the last year. Similarly, the share among those earning less than $50,000 per year climbed from 73% to 80%. While all age groups showed an uptick in the share of those living paycheck to paycheck, Gen Z saw a notable increase.

Key Findings

In the last three months, 51% of consumers faced an unexpected emergency expense.

The share of U.S. consumers who had to pay an emergency expense increased from 46% in May 2023 to 51% in May 2024. However, emergency expenses are the most common among paycheck-to-paycheck consumers who struggle to pay monthly bills. After a 13% increase in the past year, 54% of paycheck-to-paycheck consumers struggling to pay bills faced emergency expenses. This increase is due in part to unexpectedly high bills. Meanwhile, 50% of consumers who live paycheck to paycheck without issues paying bills and those not living paycheck to paycheck have faced an emergency expense.

Paycheck-to-paycheck consumers are also more likely to have experienced multiple unexpected expenses. Currently, 26% of all consumers faced multiple unexpected expenses in the last three months, a slight increase since last year. Even paycheck-to-paycheck consumers living comfortably are slightly more likely than average to have faced multiple unexpected expenses this year.

Among struggling paycheck-to-paycheck consumers, the share facing multiple unexpected expenses has increased significantly year over year. Moreover, those with issues paying bills are 76% more likely than those not living paycheck to paycheck have multiple unexpected expenses.

As of May 2024, 34% of paycheck-to-paycheck consumers struggling to pay bills face multiple unexpected expenses. For comparison, 25% said the same last year. This spike may be largely due to an increased share reporting high bills as an unexpected expense.

Paycheck-to-paycheck consumers say they spend less per emergency expense than those who do not live paycheck to paycheck.

PYMNTS Intelligence’s data shows that the average cost of an unexpected expense in the U.S. is $1,404, 3.5 times the $400 benchmark set by the Federal Reserve. As the benchmark does not reflect the full impact of unexpected expenses, the data suggests it is outdated.

The average cost of an unexpected expense has decreased slightly in the last two years. In fact, paycheck-to-paycheck consumers report they spend less per expense than those who do not live paycheck-to-paycheck. Among those struggling to pay monthly bills, the average expense was $914. Even so, that is still more than double the Fed’s $400 benchmark. The increased number of unexpected expenditures means that total consumer spend on emergency expenses may be more.

The most prevalent unexpected expenses among all consumers were vehicle repairs, at 33%, and health-related bills, at 22%. The share of consumers experiencing unexpected housing expenses, now 16%, has decreased year over year, while the share citing unexpectedly high bills, now at 8.9%, has increased.

Paycheck-to-paycheck consumers struggling to pay bills, at 24%, are most likely to report unexpectedly high bills. Moreover, data shows that the share of struggling paycheck-to-paycheck consumers with unexpectedly high bills falls is mostly among those earning more than $100,000, suggesting that this unexpected expense may be concentrated among those who spend more freely monitor their budgets less closely.

Vehicle repair is the most common emergency expense among paycheck-to-paycheck consumers without issues paying bills (37%). Housing expenses top the list for those not living paycheck to paycheck (23%). Housing expenses average $2,713, indicating that financially stable consumers spend more on unexpected expenses likely due to homeownership.

Four in 10 consumers need help paying for emergency expenses. Credit is the most popular solution, but struggling consumers are more apt to turn to friends and family.

Consumers payment options when faced with an emergency expense. PYMNTS Intelligence’s data shows that consumers’ need for assistance paying for unexpected expenses is high over the scope of our research. In May 2024, 42% of consumers cannot cover an emergency expense with savings, cash on hand or a credit payment they expect to pay off in the same month. This share is significantly higher than what the 32% the Fed believes to be true. It also represents an increase from the 33% who said the same in May 2023.

Consumers not living paycheck to paycheck reported less need for financial assistance in May 2024 than in May 2023, at 14% and 17%, respectively. In contrast, paycheck-to-paycheck consumers with issues paying monthly bills are five times more likely to use financing or alternative sources to pay for an unexpected expense. In May 2024, 73% of struggling paycheck-to-paycheck consumers turned to financial assistance to pay an unexpected expense. This represents a 9.5-percentage-point increase from last year.

Eighty-six percent of consumers not living paycheck to paycheck cover unexpected expenses with savings, cash on hand or a credit payment they expect to pay off the same month. For comparison, just 1 in 3 paycheck-to-paycheck consumers with issues paying monthly bills do the same. Instead, struggling paycheck-to-paycheck consumers are the most likely to borrow money from a friend or family. They are also the most likely to use a payday loan or overdraft or to sell off possessions. Those who use these methods are also more likely to combine them with personal savings or loans. One source of assistance may not be enough to cover the full expense. These findings are not surprising. Struggling paycheck-to-paycheck consumers are less able to put aside savings than those with more financial stability.

Conclusion

More consumers are now living paycheck to paycheck, with many struggling to pay their monthly bills. Throw in an unexpected or emergency expense, and consumers’ financial stability is taxed further. This is especially difficult for those unable to put aside savings for such an occurrence. With financially struggling consumers less likely to have cash on hand to cover such an expense, they are more apt to use other financing options. More importantly, unexpected or emergency expenses can be expensive. In fact, emergency expenses average 3.5 times more than the Fed’s $400 benchmark. For instance, the average emergency expense that struggling paycheck-to-paycheck consumers have faced is more than twice that amount, an indication the Fed’s hypothetical $400 expense remains outdated in today’s economic environment.

Methodology

“New Reality Check: The Paycheck-to-Paycheck Report: How Emergency Expenses Impact Consumers Financially,” a PYMNTS Intelligence report, draws on insights from a survey of 2,413 U.S. consumers conducted from May 3 to May 17 and an analysis of other economic data. The Paycheck-to-Paycheck series expands on existing data published by government agencies, such as the Federal Reserve and the Bureau of Labor Statistics, to provide a deep look into the core elements of American consumers’ financial wellness: income, savings, debt and spending choices. Our sample was balanced to match the U.S. adult population in a set of key demographic variables: 51% of respondents identified as female, 33% were college-educated and 38% declared incomes of more than $100,000 per year.

Read PYMNTS’ May 2024 “New Reality Check: The Paycheck-to-Paycheck Report” for more.

<sup>1. [Author unknown. Report on the Economic Well-Being of U.S. Households in 2023 – May 2024. Board of Governors of the Federal Reserve Board. 2024. https://www.federalreserve.gov/publications/files/2023-report-economic-well-being-us-households-202405.pdf. Accessed June 2024.]↩
2. [Unexpected or emergency expenses are defined as certain types of unanticipated expenses of at least $100 or more that consumers were forced to pay for in the last three months. These may include surprise medical expenses, tax bills, and urgent home or car repairs, but do not include spending on travel, electronics, clothing or other equipment.]↩
3. [Author unknown. Consumer Price Index. U.S. Bureau of Labor Statistics. 2024. https://www.bls.gov/cpi/. Accessed June 2024.]↩
4. [Author unknown. Consumer Credit – G.19. Board of Governors of the Federal Reserve System. 2024. https://www.federalreserve.gov/releases/g19/current/. Accessed June 2024.]↩
5. [Author unknown. Current Employment Statistics – CES (National). U.S. Bureau of Labor Statistics. 2024. https://www.bls.gov/ces/. Accessed May 2024.]↩
6. [Author unknown. Consumer Price Index Summary. U.S. Bureau of Labor Statistics. 2024. https://www.bls.gov/news.release/cpi.nr0.htm. Accessed June 2024.]↩</sup>