Income Gaps Widen in Ability To Pay for Emergency Expenses

Consumers are more pessimistic about their ability to cover a $400 expense than their actual payment type shows they need to be

In Morning Consult’s Quarterly Survey of Household Emergency Expenses, we ask respondents replicated questions from the “Dealing With Unexpected Expenses” section of the Federal Reserve’s annual Survey of Household Economics and Decisionmaking, which poses hypothetical questions about how consumers would pay for an emergency expense. The second section of Morning Consult’s survey focuses on actual outcomes reported by consumers who experienced emergency expenses, allowing for comparison between theoretical and observed behaviors.

In Q1 2025, only 44% of adults surveyed said they would cover an emergency $400 expense with cash or equivalents (physical cash, debit card, or a credit card paid off at the next statement), just above its series low in the previous quarter. However, when asked about their actual emergency expenses in the past month around a similar dollar amount (those between $200 and $600, making $400 the midpoint), 66% of respondents used cash or equivalents to cover the unexpected expense. 

This has been a consistent trend through the survey’s history: respondents pay for their actual emergency expenses with cash or equivalents at a higher rate than they said they would for similarly priced hypothetical expenses. Differences in actual vs. hypothetical cash payment rates could be because of a variety of reasons including (1) consumers are more pessimistic about their ability to weather an emergency expense than they are in reality (2) simply not paying for the emergency expense isn’t an option (for example if your car breaks down, you may have no option but to pay the tow truck with at least debt) (3) consumers make other tradeoffs in their spending to cover emergency expenses.

The spread between actual/hypothetical cash payment rates has been growing since its low of 14 percentage points in Q4 2023. In Q1 2025, there was a 22 percentage point spread. While the percent who said they could cover a hypothetical $400 expense is near a series low, the share who covered actual emergency expenses with cash was a few percentage points shy of its series high. 

Some of this widening spread could be explained by income dynamics: adults in low-income households are becoming more pessimistic about their ability to cover an emergency $400 expense while at the same time adults in high-income households are becoming more likely to use cash (and less likely to use debt) to cover similarly priced actual emergency expenses.

High-income adults have become more likely to cover actual emergency expenses with cash, and less likely to rely on debt

75% of high-income respondents, defined as making $100k or more annually, said that they used cash or equivalents to cover their $200-$600 emergency expenses in the previous month, up 8 percentage points from 67% in Q1 2023. Although the shares have increased somewhat for low- and middle-income adults as well (2 pp and 1 pp respectively), the gap between each income group has widened over the past two years – high-income adults paid with cash more than 13 pp more than low-income adults, up from a 8 pp difference in 2023.

At the same time, gaps have also widened between income cohorts on debt usage to cover emergency expenses – higher income households are less likely to have covered their $200-$600 emergency expenses with cash than two years ago, by 5 percentage points. On the other hand, low-income households have held around steady (up 1 percentage point from 2023). Some of this could be due to spill over effects from high interest rates. Although rates have come down slightly due to several Federal Reserve cuts, consumer rates (for example on credit cards) are still quite high by historical standards, making debt more costly. Higher income households have the luxury of being able to avoid debt more than lower income households, whereas low-income earners may need to take on debt no matter the cost of interest.

With inflation, emergency expenses have gotten more expensive, the median total amount for all actual emergency expenses (can include more than one reported expense) was $585, up from $455 in 2023. This begs the question, is the $400 emergency expense benchmark still appropriate in gauging household preparedness for emergency expenses? 

When we examine slightly pricier actual emergency expenditures, a similar trend holds: high-income households have become more likely to cover them with cash or equivalents (+3 pp) and low-income households have become less likely to (-8 pp) from the same time 2 years ago.

Diminished savings could be why low-income households are more pessimistic about their ability to handle a future emergency expense

73% of high-income households said they would cover an emergency expense with cash or equivalents, the same amount as two years ago. However, both low- and middle-income households have become more pessimistic – only 30% of lower earning adults said they would cover a $400 unexpected expense with cash, down 4 percentage points from 2 years ago, while 54% of middle-income adults said they would use cash, down 3 percentage points. 

This slowly growing pessimism could be a reflection of worsening household finances. A larger share of respondents from all income cohorts reported that they only had less than a month’s worth of savings to cover their basic expenses without any other income. This increase has been particularly pronounced for low-income families, 37% of which said they could cover less than a month with savings alone. 

A household operating on less than a month’s worth of savings is essentially living paycheck to paycheck – they rely on their income to meet their basic expenses. With heightened price growth in the past few years, savings have dwindled but also basic expenses have become costlier, adding strain to more vulnerable households. Although many households are able to cover their emergency expenses today without taking on some sort of debt, going forward, lower income households may find it more difficult to continue to bear these costs, especially at a time when re-heating inflation risks are mounting.