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Mea Culpa

Here’s a letter to those of my friends to whom I first send my letters-to-the-editor:


Pardon me for doing what I try, usually with success, to avoid doing – namely, send a letter in correction. (Not that my letters are free of error; hardly! Instead, I’m aware that you’re intelligent enough to detect my errors on your own.) But I wish today to go on record to correct an error in my letter of yesterday.

In that letter I challenged reporter Paul Brandus’s claim that, according to a 2019 Fed survey, an alarmingly large number of Americans don’t have enough personal wealth to meet a $400 emergency expense. I stand by my foundational conclusion in that letter: the Fed survey in fact does not justify Mr. Brandus’s widely shared pessimistic interpretation of Americans’ personal financial fortunes. But nor does the survey necessarily establish the more-optimistic conclusion that I drew from it. (My more-optimistic conclusion was that 86 percent of Americans answered that they’d have no trouble making such a payment.)

In fact, the most that I think one can legitimately conclude from the survey is that at least 50 percent of Americans have enough wealth to easily pay a $400 emergency expense, and possibly as many as 86 percent have such wealth. (All of these data are, of course, pre-coronavirus.) The reason for the confusion is that the survey allowed respondents to offer multiple – up to nine – answers to the following question (available here):

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.

The ability to offer two or more answers to this question drains a great deal of meaning from this survey’s results.

The answer chosen most (by 50 percent of respondents) is “With the money currently in my checking/savings account or with cash.” The answer chosen second-most (by 36 percent of respondents) is “Put it on my credit card and pay it off in full at the next statement.” But because respondents who chose the first answer could also have chosen the second answer, it’s not necessarily true that 86 percent of respondents answered that they could easily meet a $400 emergency expense. Maybe it’s as high as 86 percent; but we can’t be sure; it can be as low as 50 percent.

Again, though, I emphasize that while my more-optimistic conclusion isn’t necessarily valid, nor is the pessimistic conclusion drawn by a large number of journalists, such as Paul Brandus. This survey does not show that 40 percent of Americans cannot easily pay, out of their current income or savings, a $400 emergency expense.

The bottom line is that this survey, as far as I can tell, is not very helpful. It shows neither what it is widely interpreted to show (namely, that 40 percent of Americans can’t easily pay a $400 emergency expense) nor necessarily what I yesterday suggested that it shows (namely, that only 14 percent of Americans would have difficulty making such a payment).