The pandemic hit many households especially hard as they were financially ill prepared for the onslaught of job losses, health care emergencies and childcare and school closures. Many faced financial hardships, even with quick and generous government financial assistance. A lot of people still struggle as the country heads into its second, severe coronavirus winter and the specter of another massive virus surge looms large, even as the labor market has recovered most of its lost ground.
Decades of meager wage growth and a very slow recovery from the Great Recession in 2008 and 2009 left millions of households with little or no financial buffer to weather a financial emergencies, never mind several of them. Households in the bottom half of the wealth distribution on average had $1,881 (in 2021 dollars) in liquid or emergency savings at the end of 2019, according to data from the Federal Reserve’s Distributional Financial Accounts (see figure below). This was a similar financial buffer to the one that households had before the bursting of the dotcom bubble in 2001, almost two decades earlier (see figure below). Those with little wealth – younger households, households of color and single women, for example – had made little strides in improving their financial situation.
Many households had to turn to a social safety net that was insufficient at best and unavailable at worst. Millions of people lost their jobs overnight as entire sectors of the economy shut down. Yet, standard unemployment insurance benefits, for example, were often not available for low-wage workers, the self-employed and those working on-demand or so-called gig jobs. Other benefits such as housing assistance, cash assistance, for example, Transition Assistance for Needy Families (TANF), and food stamps – officially known as Supplemental Nutrition Assistance Program (SNAP) – come with bureaucratic obstacles, expose recipients to discrimination, and are often woefully underfunded even during normal times. Struggling families routinely fall through the holes in the safety net, leaving them financially insecure, hungry and potentially homeless. The pandemic just exposed these holes very quickly.
Congress quickly and repeatedly acted throughout the pandemic to fill the gaps and help struggling families. It passed the CARES Act in March 2020, sent additional stimulus checks, also known as Economic Impact Payments (EIP), and other benefits in December 2020 and passed President Biden’s American Rescue Plan in March 2021. These legislative actions emphasized a series of direct payments to families, either as stimulus checks, enhanced unemployment insurance benefits or Child Tax Credit payments. Many families could pay bills that they otherwise would not have been able to. And, many could build up a financial cushion amid the ongoing uncertainty of a once-in-a-century health crisis. Liquid savings for the bottom half of all households reached their highest level in more than three decades (see figure above).
The interventions helped to ease the financial pain of many. For instance, average liquid savings for the bottom half quickly exceeded $2,500 in the spring of 2020 (see figure above). But, the share of people, who had difficulties paying all of their bills, increased again as the first round of assistance from the CARES Act waned and the labor market recovery slowed in the summer and fall of 2020 (see figure below). By December 2020, more than one third of people said that they sometimes or often had difficulty paying all of their bills. When the economy regained its strength due to accelerated vaccinations and new financial assistance from the American Rescue Plan, this share dropped to a low of 26.2% in April 2021 (see figure below).
But, a strong labor market recovery amid higher financial cushions than in the past was not enough to keep many families from continuing to struggle. The share of people, who had trouble paying their bills, has gradually gone up since the spring. Many people had to catch up on unpaid bills, for instance, their rent and mortgages. Many also started to go to the doctor again, facing high health care costs, while a lot of workers went back to work, facing costly and inadequate childcare situations.
A lot of people face more than one financial struggle. Data from the U.S. Census’ Household Pulse Survey collects information not only on people’s difficulties with paying their bills, but also whether they are behind on their rent or mortgage, whether they expect to be unable to pay their rent or mortgage in the future, whether they sometimes or often cannot afford enough food to eat, whether they have experienced a recent job loss and whether they expect to lose their job soon. About 18% of people indicated more than one financial difficulty and 7% indicated more than two financial difficulties in September and October 2021 (see figure below).
A wide array of government interventions to boost people’s finances certainly helped ease people’s financial struggles, but they were not enough. Congress needs to act swiftly to ensure that the economic recovery retains its recent momentum to reach those, who are often left behind.