Americans Aren't Nearly as Poor as the Media Says
Debunking "$400 to spare in an emergency", and delving into less misleading statistics
I recently saw a meme in the finance feed here on Substack that caught my attention. Most of what my peers on here share has tens of likes, or hundreds if they’re lucky. This had thousands. It said the following: “Most Americans are a few months from being homeless. Nobody’s a few months from being a billionaire.”
The point is a strong one: upward mobility isn’t anywhere near as frequent as downward mobility. Endless tech investment and quantitative easing/bank bailouts have made finance and tech careers lucrative, but the qualifications for those jobs are few and far between. Everyone from the middle class down (the non-stockholders) has had a grim go of it since the 2008 recession, if not well before. Innovating your way to success is thousands of times harder than losing your job, getting kicked out of your overpriced apartment, and winding up on the street.
And yet, and yet. I simply couldn’t let the point stand that most of us are a few months from being homeless. Most of us?!?!? That just isn’t true, and most people must know that, right? I checked the comments and found no one disagreeing with the meme’s premise, so I left my own respectful correction. I doubted anyone would listen.
$400
The American media thrives on dark, depressing headlines. A recession is just around the corner. (So they’ve been saying since the last one, which they missed.) An even grimmer pandemic is on its way. The Earth is dying. Democracy is dying. Political leaders are the worst in the history of their countries. Level-headed, rational headlines that convey facts simply don’t bring in the bacon for media companies, who are in an era of vicious competition as the Internet has made it nearly impossible for them to consistently make money. (As Warren Buffett would put it, they have no way of creating moats; if they try for journalistic integrity, a less honest startup will eat their lunch within days.) The era of Walter Cronkite reading off unbiased, fact-checked news to every household in the country is now only alive through the memories of the older individuals who witnessed it—conversations with them are fascinating.
But there’s no story the media loves to tell more than that of Americans’ shocking, widespread, intractable poverty. And it all started with one seemingly innocuous metric created by the Federal Reserve to measure households’ economic well-being. The stat, which is still accessible on the Fed’s website, has been repeated ad nauseum: something like a third, but perhaps as many as 40%, of US households, couldn’t cover a $400 emergency bill for which they had to pay cash.
This figure sounds so grim that one doesn’t think to argue with it. However, the finding itself may be in doubt: according to a study of bank accounts by JP Morgan Chase, about 90% of households would be able to cover the expense, including 77% of households in the lowest income quartile. Respected finance blogger Wolf Richter found the real number of people truly not being able to afford the $400 charge at 13%. In addition, some have seized on the question’s wording: do the findings suggest that Americans are poor, or just cash poor? Some may choose to put the expense on a credit card rather than paying it off in cash, but that doesn’t mean they don’t have the cash.
In fact, there are many options: when faced with an unexpected bill, individuals can tap lines of credit, such as home equity, borrow on a flexible plan with lower-than-credit-card interest like some credit card companies offer, take out a personal loan, borrow from friends and family, etc. An individual may own a house and car and be paying the loans against them off aggressively while not saving much. While not recommended, this is something many people do; even I did at one point. So not having $400 in cash to spare immediately, or not wanting to spend $400 in cash immediately (which some say the wording of the question implies) does not mean one is a single $400 bill away from being homeless.
Most of my readers probably know this, but just in case, let me state clearly: It is never a good idea to carry a credit card balance when pretty much any other option is available. Credit card debt spirals rapidly and is crippling. Unless there is literally no other choice, pay your credit card bills off in full every month and make money from them instead by collecting the points.
What are the actual numbers?
A better question than the $400 emergency question, which is misleading in various ways, is “how much money does the median American have?” The answer is around $192,000, more than enough to pay for many surprise expenses. (Note that the mean is over $1 million, but the multibillionaires drastically skew this statistic, providing a great example of why the median is more useful than the mean in many situations.)
Saving $200,000 is difficult. But most of that is probably home equity. Buying a house and paying down the mortgage while the home value rises is generally called “building equity.” According to Bankrate’s summary of a Census Bureau report, about two-thirds of Americans own their homes, giving them ample opportunity to do just that.
Millennials are often said to have the grimmest economic prospects in many generations. An infamously difficult job market lasted over a decade, and two recessions and tightening credit made it difficult for them to buy homes. Gen Z might be having an even tougher go of it, as remote jobs may limit opportunities to network and climb the corporate ladder. But according to the above data, a decent 39% of folks under 35 own homes. (Although the study does mention that the figure was closer to half in 1990, a testament to the over-correction in lending practices seen after the Great Recession.)
There are around 770,000 homeless people in the US, versus around 24 million millionaires. This means there are around 31 times as many millionaires as homeless individuals. While not excusing our country’s disturbing housing issues, this fact indicates that the United States has not yet devolved into the tiny oligarchy it is sometimes characterized as.
Economic optimism in surveys is strong. While the most recent study undertaken by Gallup showed stark partisan divisions, perhaps due to its being conducted immediately after the 2024 election, a clear majority still predicted economic growth in the medium term, with forecasts of dire inflation slowing as well.
There are a lot of undisputed issues with the American economic system. Real wages have stagnated as the stock market has exploded and policymakers have bailed out large companies for their own mistakes. (Most recently they saved the airlines during COVID, even though almost all of them had pursued share buybacks instead of building up a savings cushion for just this type of crisis.) The saying “socialism for the rich, capitalism for the poor” holds a lot of water these days.
However, things are bad enough for the bottom half without exaggerations to make them sound even worse. The majority of Americans have some amount of savings, whether liquid or not, and many households own their own homes. There are more millionaires than homeless by a factor of 30—a really stunning fact that the news will never tell you. And even though they supposedly can’t afford a $400 bill, most Americans are looking to the future with enthusiasm, as did many of their forebears in much worse times.