Widespread and Costly: Expense Shocks Challenge Family Finances and Interrupt Wealth Building
Author: Sheida Elmi
Contents
Key Findings
Financial shocks are common and costly, and their cascading effects have downstream consequences for family finances.
- Nearly 7 in 10 households experience a significant unexpected expense shock and 3 in 10 experience a significant income shock in a given year that they could put a cost on.
- Households are almost twice as likely to experience two or more expense shocks in a year than none or just one.
- Among those that experience at least one expense shock, they will pay a median total of $4,500 annually to cover them
- The most frequent expense shocks are a major vehicle repair or replacement, a significant out-of-pocket medical expense, a major house or appliance repair, and a computer or cell phone repair or replacement. At the median, expense shocks in these categories cost $2,000 for all but the computer or cell phone-related costs ($700 at the median).
Introduction
Sudden medical expenses, reduced work hours, and other financial shocks are a stubborn financial reality for most families living in the United States. These shocks chip away at people’s ability to afford daily life and make it harder for families to be financially resilient and build wealth.
Yet, many families living in the United States are unprepared to handle significant financial shocks on their own. Take, for instance:
- In 2024, just 51 percent of adults reported spending less than their income in the past month, leaving the rest without the routinely positive cash flow needed to pay regular expenses and build savings and other financial buffers.
- While nearly two-thirds of households can cover a $400 expense, only around half said they would have the savings to pay for an expense of $2,000 or more.
- Households have little buffer between income and expenses: In 2024, if a household lost their primary source of income, 42 percent of households could cover expenses for only a month or less using all sources available to them, including savings, borrowing, help from friends or family, or selling assets.
Taken together, these data suggest there is a significant demand for solutions that can help families when shocks arise and reduce the harm they experience.
That financial shocks disrupt family finances is not new; this cycle of financial precarity that undermines financial security has long been true. We suspect that families are also experiencing shocks that are harder to see in the data, such as those related to severe weather and rising energy and water burdens, expenses related to petcare, and funeral costs. At the same time, the set of solutions families can turn to has meaningfully expanded. A future question to explore is whether families are any better off for it?
These figures update our understanding of the type, frequency, and severity of financial shocks families experience, and provide a current picture of their ability to weather them. The data make clear that shocks affect households regardless of their financial circumstances or demographics. We focus primarily on expense shocks and draw heavily from Scott Fulford and David Low’s analysis of the Making Ends Meet survey (2022-2025). The findings provide a foundation for stakeholders—including financial service providers, employers, benefits administrators and policymakers, insurers, philanthropy, and community-based organizations—that facilitate access to solutions families and communities need to address financial shocks at scale. solutions families and communities need to address financial shocks at scale.
Financial shocks: Not if, but when
Most people living in the United States experience large financial shocks annually. In a given year, 68 percent of households report experiencing a significant unexpected expense shock (like major out-of-pocket medical care) and 30 percent report experiencing a significant income shock (like a loss of government benefits). 1
The cost of these shocks add up, totaling nearly a fifth of a family’s annual income.
Note: Respondents were asked, “In the past 12 months, has your household experienced a significant unexpected expense from any of the following?” If the respondent selected yes to having experienced any of the nine possible expense categories shared, they were then asked, “If yes, about how much was the cost?” And, “In the past 12 months, has your household experienced a significant drop in income from any of the following?” If the respondent selected yes to having experienced any of the twelve possible income categories shared, they were then asked, “If yes, about how much income did you lose because of this circumstance over the past 12 months?” The percentage of households experiencing the shock includes those that reported a shock and a cost to having that shock. This was calculated based on the 2022, 2023, 2024, and 2025 Making Ends Meet Surveys for expense shocks. Income shocks are based on 2023, 2024, and 2025 surveys.
Most households experience multiple expense shocks
Note: This figure includes all households who reported experiencing any expense shocks, even if it did not report a cost of having that shock. Based on 2023, 2024, and 2025 Making Ends Meet Survey data.
Nearly half (49 percent) of people experience multiple expense shocks in a given year, while 25 percent face just one. Households can also experience an income and expense shock concurrently or back to back, compounding the difficulty of absorbing the costs of these shocks and depleting their financial buffers, if they had any to start. People may also be limited by other financial constraints—like their credit score or debt—that impact the type and cost of solutions they can turn to for support.
Financial shocks also tend to cascade over time. Fulford and Low found that households that experienced an unexpected expense in one year are more likely to experience an unexpected expense or significant income drop the following year. One reason that this can happen is that people are experiencing recurring shocks—for instance, medical expenses due to a chronic illness—that make it harder to be prepared for future shocks.
Families that experience at least one expense shock pay a total of $4,500 annually at the median to cover all expense shocks and an average of $11,404. This is a significant cost for families to address. Families have to contend with this constant barrage of expense shocks while trying to stay current on other financial obligations including regular bills. These shocks create difficult tradeoffs like skipping meals or prescription refills to pay for groceries, and can harm families’ long-term financial goals to save and build wealth. Many households have little or no buffer between income and expenses, meaning that they likely need programs, policies, and products that can help them address these expense shocks beyond what they might have saved. Having access to timely, affordable, and safe solutions is critical to ensuring families can address shocks and not land in a cycle of debt or in a more precarious financial position.
On average, expense shocks cost families more than income shocks annually
Note: The points on this figure plot the percentage of households experiencing a particular category of income or expense shock and the average cost they reported to address that shock category in the past year. Also note that these averages are quite high compared to the median cost that households are experiencing, reflecting the dispersion of the costs incurred by families for these various categories. Expense shocks are based on the 2022, 2023, 2024, and 2025 Making Ends Meet Surveys. Income shocks are based on 2023, 2024, and 2025 surveys.
Looking across categories of income and expense shocks, the data show that expense shocks are more common but less costly compared with income shocks. Conversely, individual income shock categories occur less frequently, but can be more costly when they do occur.
On average, households could spend 10 percent relative to their income on unexpected expenses each year, nearly twice that of income shocks (6 percent).2 But this average masks that about one-third of households are spending much more to address these shocks, and that some households are unable to address them at all.
At worst, a family’s income can only go down to zero, whereas the cost of expense shocks is not similarly bound. The data likely undercount the full cost of expense shocks and mask some of the material hardships and stress when households have to postpone needed medical care or ignore needed car repairs. The strategies families utilize to address these shocks can have longer-term consequences—such as taking on debt they struggle to repay and the potential impacts to credit scores if they do—that can derail people’s progress towards their financial goals and harm financial security overall.
Financial Shocks Impact More than Your Wallet
Financial shocks often carry hidden costs beyond what we can observe in the data. Aspen FSP’s Community Advisory Group highlighted the human toll of the shocks they found most stressful and challenging to resolve in their own lives, including funeral costs, medical bills, having a child, and mental healthcare. These shocks often trigger emotional and physical distress. Even with insurance or other resources, the path to resolution is frequently time-consuming and difficult to navigate, and it can involve high out-of-pocket costs that are not always resolved.
Expense shocks affect households across financial circumstances and demographics
The proportion of income that expense shocks represent generally goes down with income, but is otherwise relatively stable across demographics. When families making $50,000 or less have an expense shock, its cost will likely represent a large proportion of their income. For instance, for households making $20,000 or less, expense shocks are costly (totaling 16 percent of their annual income).
Note: These numbers are based on households that reported experiencing expense shocks in the past year that also shared a non-zero cost associated with those expense shocks. Based on the 2022, 2023, 2024, and 2025 Making Ends Meet Surveys.
Expense shocks vary and their costs range widely
Note: The points on this figure plot the percentage of households experiencing a particular expense shock category and the total cost at the 25th percentile, median, and 75th percentile, based on the 2022, 2023, 2024, and 2025 Making Ends Meet Surveys.
Seeing the holistic picture of disparate expense shocks with severe cost burdens helps underscore the many reasons people may need short-term liquidity solutions.
At the median, families that experience them pay $2,000 for the priciest types of expense shocks in a given year. However, more than a quarter of households pay many thousands more. For instance, while the median family pays $2,000 if they have any major out-of-pocket healthcare expense, one quarter of families pay $5,000 or more.
And in addition to being the most common, vehicle repairs or replacement are one of the most expensive shocks. Vehicles are unique in a household balance sheet because they are one of the first assets households acquire and can function as a means of transport to work, tying them to a family’s income and wealth.
Severe weather creates financial shocks
In addition to the financial shocks raised above, there are also financial shocks brought on by severe weather—such as hurricanes, heat waves, and flooding. The Federal Reserve Board found that in 2024, 21 percent of adults reported being financially affected by a natural disaster or a severe weather event, up from 13 percent in 2022. Of those affected, 10 percent of all adults experienced property damage, 6 percent had work-related disruptions, and 3 percent needed to evacuate.
Note: These numbers are based on households that reported experiencing expense shocks in the past year that also shared a non-zero cost associated with those expense shocks. Based on the 2022, 2023, 2024, and 2025 Making Ends Meet Surveys.
Families need solutions to address the prevalence and severity of financial shocks
Financial shocks remain prevalent and costly, and affect families across financial situations and demographics, despite the expansion of financial products and services, policies, and programs to address them. In particular, families continue to struggle to either find what they need to address them, navigating a patchwork of options—including emergency and retirement savings accounts, credit cards, loans, private and social insurance, and social networks—and their respective tradeoffs. There may be a time lag between paying for an expense and getting reimbursed for some products and policy options, which strains family budgets further, or households could face other consequences like credit score impacts that reduce financial resilience. Inflation adds yet another layer to these challenges, as daily expenses begin to look more like “shocks,” cutting into the little buffer some families have between income and expenses.
The reality is that financial shocks are not going away. These figures detailed the type, prevalence, and frequency of shocks families experience. The question for interested stakeholders is whether families see a meaningful difference in their financial wellbeing and resilience given the changes in the marketplace or whether the expanded set of solutions is in some ways masking the true level of hardship families continue to experience with shocks.
Footnotes
- These percentages represent the incidence of households that shared that they (1) experienced an income or an expense shock and (2) shared an associated cost to having the shock. ↩︎
- These numbers include all households, counting households that did not experience financial shocks as spending no money, except those households with expense shocks totalling more than 10 times income. These averages for overall income and expense shocks are not plotted on this figure as they are measured differently than those shown for the expense and income shock categories. ↩︎
Further Reading
- Emergency savings may hold key to financial well-being — Report by Vanguard
- Weathering Volatility 2.0 — Report by JPMorganChase Institute
- The Role of Emergency Savings in Family Financial Security — Issue briefs by The Pew Charitable Trusts
We are grateful to Wells Fargo for their support of this article. The views, interpretations, and conclusions expressed here are Aspen FSP’s alone and do not necessarily reflect the views of its funders.
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