More Americans can now cover a $1,000 emergency, but it’s still less than half

Around 44% of people in the U.S. say they would be able to cover that level of emergency expense without putting it on a credit card or borrowing money, according to a survey released Wednesday by Bankrate of just over 1,000 U.S. adults. 

That’s the highest proportion of Americans who said they could handle unexpected bills in the eight years that Bankrate has been conducting the survey, topping even 2020 and 2021 levels when federal programs like stimulus checks, enhanced unemployment benefits, and child tax credit payments were in place.

The increased ability to cover that $1,000 expense could be due to a few things: remaining savings from federal programs from last year, a rebounding U.S. economy, and a fall in unemployment. People are getting back to work and wage growth has been on the rise, Greg McBride, chief financial analyst for Bankrate, tells Fortune.

But it’s not all economic factors at play. The pandemic changed Americans’ priorities around saving, especially in light of the high unemployment seen in 2020. “The pandemic also underscored the importance of emergency savings, so there’s a greater focus on rebuilding what was lost during the pandemic, but also accumulating savings for those that previously hadn’t done so,” he says. 

Not everyone has a robust savings cushion

Despite a higher number of Americans able to pay for a major unplanned expense using their savings, more than a third would still have to borrow the money. About 35% of those surveyed said they would have to finance the expense using a credit card or a personal loan, or by taking money from family and friends.

Younger millennials, ages 26 to 32, were the most likely of all age groups to finance an unplanned $1,000 expense with a credit card. Younger workers were predominantly hit by income disruptions and joblessness during the pandemic, McBride says. They have also had less time than older workers to even begin to build up their savings. 

Even among older Americans, however, the current savings cushion is unlikely to last because high inflation is making it harder to save. “I’m not as optimistic that we’re going to replicate the success of the last 12 months over the next 12 months,” McBride tells Fortune.

It’s also unlikely that most Americans are still reaping the rewards of working remotely as they were when lockdowns were in place during the early days of the pandemic, which led to less spending on transportation costs and restaurants. In many cases, this meant Americans had more money in their budgets and found it easier to put more away in savings.  

“We were expecting [the pandemic] to be short-term, so people weren’t spending, they were saving more,” McBride says. “Two years in, for a lot of households, the money that doesn’t get spent on travel, dining out, or going to a concert is just getting spent someplace else—whether it’s on home improvements, or just other necessities that are increasing in cost.”

Americans’ personal savings rates as a percentage of their disposable personal income have already dropped since the all-time high of 33.8% in April 2020, hitting 6.9% in November, according to the latest data available from the Bureau of Economic Analysis. 

Half of Americans say inflation is eating into their ability to save

Typically experts recommend most Americans have between three to six months of living expenses saved up. 

And while some Americans may have a fully funded emergency savings cushion, it may now prove harder to build it back up once it’s been spent. That’s because inflation is starting to eat into savings rates. 

About 49% of those surveyed by Bankrate report that inflation is causing them to save less, while a third say it’s having no impact. About 2% of respondents say they were never able to save to begin with. 

“Inflation is stretching the household budget further and further,” McBride says.

“This inflation is very broad-based,” he adds, noting that it’s affecting nondiscretionary spending such as food and rent in big ways. Grocery prices rose 6.5% over the past 12 months while rents increased by about 3.3%, according to the December consumer price index. 

If household income growth outpaces inflation—and if inflation does abate, McBride says, maybe then households could truly make headway with their savings. But that’s difficult to predict, and many experts are predicting that high inflation will stick around through 2022.

How to save with soaring inflation

For those who are looking to save, McBride recommends utilizing loyalty programs and taking full advantage of discounts, coupons, and rebates to help keep spending costs down. Even using up your cash-back rewards or that stash of gift cards tucked away helps. 

If possible, McBride says, now might be a good opportunity to focus on increasing your income. Ask for a raise or perhaps seek out a new job. Or, if you have the bandwidth to take on a second job, do some gig work even for just a brief period of time. 

“You can capitalize on this labor market where there are millions of open unfilled jobs, and that can give you this window of time to rebuild your emergency savings or pay off that credit card debt once and for all,” he says. 

The best step toward building savings, however, is still to set up a direct deposit from your paycheck into a dedicated savings account. “It makes sure that the savings happens; it forces you to build a budget around your take-home pay,” he says, but adds that may be difficult for many in light of rising costs. 

“Now more than ever, you can’t try to save by waiting until the end of the month to see what’s left over,” McBride says. “At a time when costs are going up the way they are, there just isn’t money left over. And even when there is, there’s no consistency to that.”