Americans’ savings are drying up as the amount of money households have in reserves reaches pre-pandemic levels for the first time
- About 80 percent of Americans have less extra money in reserve than they did before the pandemic, according to a new Federal Reserve survey of household finances.
- Bank deposits and liquid assets fell below their March 2020 levels, after adjusting for inflation
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The pandemic has taken a toll on American finances, with a recent survey showing that as many as 80 percent of Americans now have less spare cash than they did before the pandemic.
Bank deposits and liquid assets – after adjusting for inflation – have fallen below March 2020 levels Bloomberg and a San Francisco Federal Reserve survey of household finances.
Moreover, there are major differences between economic classes.
The poorest two-fifths of Americans saw an eight percent drop in cash holdings. In contrast, the nation’s wealthiest people have experienced an 8 percent increase in cash savings compared to pre-COVID.
The middle class also witnessed their savings fall below pre-pandemic levels last quarter.
Bank deposits and liquid assets fell below March 2020 levels, after adjusting for inflation
The pandemic has taken a toll on American finances, with a recent survey showing that as many as 80 percent of Americans now have less cash on hand than before the pandemic.
The poorest two-fifths of Americans saw an eight percent drop in cash holdings. In contrast, the nation’s wealthiest people have experienced an 8 percent increase compared to pre-COVID
To calculate the amount of excess savings, officials used a baseline of what the savings would have been if pre-pandemic trends had continued. Then, many Americans saved more money during the pandemic as social distancing limited activities.
So in January 2022, the bottom 40 percent of U.S. household incomes saw 103.3 percent in savings — or 3.3 percent more than expected due to the pandemic.
The decline raises concerns about the declining financial resilience of U.S. consumers, who have played a crucial role in keeping the economy afloat.
Some analysts warn that this loss of savings could continue for some households.
The Federal Reserve Bank of San Francisco is sounding the alarm, suggesting that excess savings will likely be spent in the current quarter as Americans continue to deal with the effects of inflation and everyday goods cost more money.
Although household net worth hit a record high in the period between April and June, this was driven by less cash and instead forms of wealth such as house and stock gains, according to government data reported by Bloomberg.
The trajectory of household finances post-COVID has also been unique thanks to significant government support and forced savings during lockdowns.
This comes as the country faces the resumption of student loan repayments after a three-year hiatus.
That will force more American families to shell out more money than they had in the past three years to cover their student loan payments — which often amounts to hundreds of dollars a month.
In October, about 27 million borrowers will have to pay back their federal student loans after the three-year pause.
About 56 percent of 526 respondents to a recent Bloomberg survey said consumption would most likely decline in the first quarter of 2024
Last year, President Joe Biden tried to use his executive order to cancel nearly $400 billion in student debt, but the Supreme Court rejected that decision in June.
While U.S. consumers have kept up with inflation and remained resilient amid rising interest rates during and after the pandemic, some worry that student loans could be the breaking point.
Earlier this month, a survey showed that American consumers would cut back on spending for the first time since the pandemic in early 2024 as they battle looming financial pressures.
Americans have so far defied analysts’ expectations of a recession by maintaining strong spending to shore up the economy. Consumers spent money on record-breaking blockbusters and concert tours this summer, including Taylor Swift’s Eras Tour and Margot Robbie’s Barbie.
But experts predicted that might be coming to an end.
About 56 percent of 526 investors surveyed by Bloomberg said consumption would most likely decline in the first quarter of 2024.
Meanwhile, 21 percent said the tipping point could come sooner, in the fourth quarter of 2023. The remaining 23 percent thought spending would “remain positive for the foreseeable future.”
