Survey: Financial Setbacks Can Take Months to Recover From

Median cost of setbacks ranges between $3,000 and $4,000
A couple concerned with their finances

If you haven’t experienced a financial setback lately, you would be wise to start preparing now. Nearly half of adults aged 30 and up have had a financial challenge in the past year that they weren’t expecting, a new survey shows.

While financial planning can help you weather a storm, there are certain events that can be difficult to predict, such as illness, job loss or household repairs that seem to come out of left field. To gauge the impact of such events on consumers, AARP surveyed 1,697 adults age 30 and over about financial setbacks they have experienced.

One finding that came out of the survey: financial setbacks are not rare. In fact, 47% of respondents said they had experienced one in their household in the past 12 months. Among those who had a financial setback, more than half — 56% — said they had experienced more than one.

The financial cost of a setback

The survey also found that financial setbacks can be hefty. The median cost of unexpected financial challenges ranged from $3,000 to $4,000. Among respondents who had a household income of $75,000 or more, the median cost of unexpected financial challenges was higher, between $5,000 and $10,000.

If recovering from a $3,000 setback sounds challenging to you, you are in good company, as 44% of those who experienced a financial setback in the last year said recovery would take six months or longer.

When it comes to the practical steps taken by those who have experienced a financial setback, most respondents — 91% — cut back on expenses. That was followed by 64% who withdrew money from a bank account to cover the costs, 62% who delayed paying one or more bills and 51% who used a credit card. Nearly half — 49% — worked extra hours or did something to supplement their income, 42% sold something and 40% borrowed from a friend or family member.

The most common expenses to cause an unexpected setback were

  • A medical expense (33%)
  • A necessary repair (32%)
  • A caregiving expense (7%)
  • An educational expense (7%)
  • A tax bill (5%)

While financial setbacks cross every age group and demographic, the survey suggests that some groups are more likely to be caught off guard. Consumers with household incomes below $75,000 were more likely to have had a financial setback in the past year than those with incomes above $75,000. Also, women, younger consumers and people of color were more likely to have had a financial setback in the past year.

When you’re creating your household budget, it’s important to include funds for unexpected expenses. While you may not be able to predict exactly what may happen in the future, you can research the costs of common costs for home repairs and medical expenses so you’re less likely to underestimate how much to put aside. Also, focus on building a sizable emergency fund so you are better equipped to handle an unexpected expense.

Tamara E. Holmes

Tamara E. Holmes is a Washington, DC-based writer who covers personal finance, entrepreneurship and careers.