Contrary to fears that COVID-19 would cause a complete meltdown of American finances, many households have emerged stronger than before, according to The Wall Street Journal (subscription).
The concern: The first shutdown caused employment to plummet to levels that haven’t been seen since the Great Depression. Many Americans were furloughed or laid off from their jobs and worried about tearing through their hard-earned savings. There were pervasive fears that a continued pandemic would cause untold financial devastation.
The reality: Americans of all income levels socked away more money during the pandemic, according to Moody’s Analytics estimates based in part on government data. The personal saving rate—a measure of how much money people have left over after spending and taxes—hit a record 33.8% in April 2020, according to the Bureau of Economic Analysis. The rate averaged just under 8% for the two years before the pandemic began.
Why it happened: The surprising financial stability came from a range of factors. Three rounds of federal stimulus payments helped provide additional funds to most Americans, while shutdowns and quarantines caused them to redirect spending. Unemployment benefits, child tax credits and pauses in student loan payments also helped Americans build a cushion in their checking and savings accounts.
The road ahead: While the increase in cash has been a welcome result, it may not last forever. Rising costs due to inflation are chipping away at savings, and lower-income households could deplete their extra funds sometime next year.