Only 65.8% Of U.S. Households Feel Confident In Handling An Unexpected $2,000 Expense — Federal Reserve Reveals How Economically Fragile People Are Now

The Federal Reserve Bank of New York's recent Survey of Consumer Expectations reveals a concerning trend: Only 65.8% of U.S. households believe they can handle an unexpected $2,000 expense in the coming month. This figure, the lowest since 2013, indicates a decline from the previous year's average of 67.5%, marking a subtle yet significant increase in perceived financial fragility among American families. 

The data is alarming, reflecting a broader trend of diminishing financial resilience among Americans. The decline in the ability to manage unforeseen expenses points to a growing sense of financial vulnerability. 

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Most credit application rates weakened, except for applications for credit card limit increases, which rose. Rejection rates on credit applications increased overall but declined for credit card limit extension applications and new mortgage applications. Looking ahead, households anticipate being less likely to apply for new credit cards, auto loans, mortgages or mortgage refinance loans over the next 12 months. They also report higher average perceived likelihoods of future credit application rejections, conditional on applying over the next 12 months.

Key Survey Findings

Key findings from the survey over the past year include:

Reported application rates for any kind of credit over the past 12 months declined notably, with an average application rate of 41.2% in 2023, well below its 2022 level of 44.8% and its prepandemic 2019 level of 45.8%.

Reported rejection rates among applicants increased to 20.1% in 2023 from 18% in 2022, exceeding the 2019 level of 17.6%.

The average share of respondents who were too discouraged to apply for credit over the past 12 months, despite needing it, continued its gradual decline, falling to 5.2% in 2023 from 6.5% in 2022.

Application rates for credit cards, credit card limit increases, auto loans, mortgages and mortgage refinancing experienced various trends in 2023, with some increasing and others declining.

Rejection rates for credit cards, auto loans, mortgage loans, mortgage refinancing and credit card limit extension applications also varied in 2023, with some increasing and others decreasing.

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Practical Tips For Navigating Financial Uncertainty 

In light of these findings, individuals and families must take proactive steps to strengthen their financial health. Here are some key strategies: 

1. Create an emergency fund: Start by setting aside a small amount regularly to build an emergency fund. This fund acts as a buffer against unexpected expenses, reducing the need to rely on credit. 

2. Reevaluate budgeting practices: Regularly review and adjust your budget. Identify nonessential expenses that can be reduced or eliminated, redirecting those funds to savings or debt reduction. 

3. Consult a financial adviser: Financial advisers can provide personalized advice based on your financial situation. They can help you create a financial plan, invest wisely and make informed decisions about savings and debt management. 

4. Improve financial literacy: Educate yourself about financial management. Resources are available online, including courses and articles that cover budgeting, saving, investing and understanding credit. 

5. Explore credit options: If you need to apply for credit, research and choose options that offer the best terms for your situation. Be aware of interest rates, fees and the terms of repayment. 

6. Plan for the long term: Set long-term financial goals, such as retirement savings or funding education. A clear vision for the future can guide your financial decisions and help prioritize your spending. 

7. Monitor credit health: Regularly check your credit report to understand your credit status and to spot any errors or fraudulent activities early. 

8. Cultivate multiple income streams: If possible, diversify your income. This could mean taking on freelance work, starting a side business or investing in income-generating assets. 

The findings from the Federal Reserve Bank of New York highlight the importance of financial vigilance and preparedness. By adopting these strategies, you can enhance your financial stability and resilience, better equipping yourself to navigate the complexities of today's economic environment.

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Jeannine Mancini has written about personal finance and investment for the past 13 years in a variety of publications including Zacks, The Nest and eHow. She is not a licensed financial adviser and the content herein is for information purposes only and is not, and does not constitute or intend to constitute, investment advice or any investment service. While Mancini believes that the information contained herein is reliable and derived from reliable sources, there is no representation, warranty or undertaking, stated or implied, as to the accuracy or completeness of the information.