Can Households Afford Public Services When Faced With Unexpected Expenses?

At the Environmental Finance Center, we think a lot about the affordability of public services including environmental services such as drinking water. Historically, many programs have measured affordability by looking at the cost of service compared to a community’s median household income, though this measure is limited. A better way to measure affordability is to look at the cost of services over a range of income buckets. All of these measures, though, are looking at affordability compared to annual income. That can be a good measure if households only have regular expenses. But what happens if a household has an unexpected expense? Would that household be able to cover its regular expenses if it had an emergency expense? Since 2013, the Federal Reserve Board has conducted the Survey of Household Economics and Decisionmaking (SHED), which measures the economic well-being of U.S. households and identifies potential risks to their finances. The survey includes modules on a range of topics of current relevance to financial well-being including credit access and behaviors, savings, retirement, economic fragility, and education and student loans. Their most recent report came out on May 22, 2018, and The Indicator podcast from Planet Money featured the survey results on a recent episode. One section of the survey looks at how adults in the United States can handle unexpected expenses. Respondents were asked whether they would be able to cover an unexpected $400 expense. Needing $400 for an unexpected expense is not unreasonable—the average car repair bill is between $500 and $600, and the median cost of a [...]