Down Debt

How Have Stimulus Checks Affected Household Finances?

Before the COVID-19 pandemic, despite a booming economy, about 40% of households said they would struggle to pay an unexpected expense of $ 400.

About half of those households didn’t really have $ 400, and the other half had $ 400 but were burdened with credit card debt. When households operate on such tight budgets, saving for long-term goals such as retirement can be difficult.

The question is how COVID-19, with its numerous job losses, roaring stock market and multiple stimulus checks, has affected household balance sheets. While full information on the long-term impact of stimulus payments may not be available for a few years, recent research using old data provides an indication of the current state of affairs.

Obviously, those with substantial assets benefited from a strong stock market, but, without help, the pandemic would certainly have increased the share unable to cover an emergency expense of $ 400. Fortunately, Congress provided most households – regardless of employment status – with three rounds of Economic Impact Payments (EIPs), and the amounts were substantial (see Table 1).

Federal Reserve 2020 Survey of Household Economics and Decision Making, which was conducted in November 2020 (with earlier supplements in April and July), shows how the first payment affected households’ assessment of their ability to cover an emergency expense of $ 400.

Not surprisingly, the answers differ depending on their professional experience. For workers (about a quarter) who lost their jobs, were asked to take unpaid leave, or saw their wages cut, the first EAP provided some temporary relief. Among this group, the percentage of inability to cover an expense of $ 400 increased from 51% to 36% between April and July 2020. However, this beneficial effect evaporated before the end of 2020, potentially because the supplement original unemployment insurance of $ 600 per week expired.

In comparison, among workers who kept their jobs, the share of struggling to cover a $ 400 expense fell to one-third at the start of the pandemic from the pre-pandemic level of around 40% – and remained at roughly in that range for the rest of the year.

While the first EIP mainly allowed households that had lost their jobs to make ends meet, the Census Bureau’s early indicators Household pulse survey (which has been conducted almost weekly since April 2020) suggest that the second and third IEPs have helped a lot in improving their track record. About three-quarters of households kept their second and third EAP checks or used them to repay debts, regardless of their job loss status (see Figure 2). The extension of regular unemployment benefits and the new supplementary unemployment benefits probably also contributed to this result.

In short, early indicators suggest that the first payment served as a much needed lifeline for workers who lost their jobs and helped those who kept their jobs build up precautionary savings and pay off some of their debts. In addition, many workers, even those who lost their jobs, were able to save or pay off their debts using their second and third installments. The question is to know how long these favorable developments in the balance sheet will last.

Leave a Reply

Your email address will not be published.