The Washington PostDemocracy Dies in Darkness

Two years into the pandemic, America has become the land of the bulging bank accounts

But for some, the savings cushion is looking threadbare

Emery Wainwright walks with Valentine's Day balloons for his children in Brattleboro, Vt., on Feb. 14. (Kristopher Radder/AP)
9 min

Most Americans are significantly better off financially now than they were before the pandemic began, new bank-account data shows, but there are signs that low-income families are beginning to fall behind.

Following surprisingly strong retail sales, consumer expectations and hiring numbers, new savings data through December 2021 from the JPMorgan Chase Institute points to a rapidly thawing economy, one that could shift into even higher gear as the omicron-fueled covid-19 wave subsides and states continue to ease some covid restrictions.

Americans are sitting on $2.6 trillion in extra savings, a separate Post analysis shows, and signs abound that they are opening up their wallets on long-delayed spending on travel, dining and other experiences that have been on hold since lockdowns swept the country almost two years ago.

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High earners will drive much of that aggregate spending, said Fiona Greig, co-president of the JPMC Institute. They have an average of almost $1,300 more in their bank accounts than before the pandemic began, according to the institute’s analysis of anonymized bank-account data for 7.5 million families. Families’ retirement accounts and home equity also have soared.

For low-income families, the picture is mixed. They saw the largest proportional increase, as their balances are up about 70 percent from 2019 levels. But in the past three months, the balances of lower earners fell slightly, to an average of $1,288, in contrast with higher earners, whose balances kept gaining.

“Seventy percent elevated sounds really high, but in terms of dollar values, it’s not a ton of cash,” Greig said.

But for now, even low-income households still have a substantial savings from their stimulus and unemployment checks, data shows, and a widely watched survey points to the sunniest consumer outlook going back to 2013.

Indeed, across the income spectrum, income and spending growth expectations have reached record highs, and the average probability of a missed loan payment is near record lows, said Gizem Kosar, an economist on the New York Fed’s Survey of Consumer Expectations team.

To be sure, a spending spree could throw more fuel on an already hot economy and worsen the nation’s biggest surge of inflation in four decades. Conflict in the Ukraine is already threatening to push up fuel prices, and raising the risk of cyberattacks that could newly snarl supply chains, said Diane Swonk, chief economist at Grant Thornton. If those disruptions coincide with a rush of spending on dining, travel and automobiles, policymakers could find themselves faced with a situation not seen since the 1970s.

Yet, there is potential for a substantial spending boom. Despite soaring inflation and multiple waves of covid-19, crisis-era stimulus that added an estimated $1.7 trillion to U.S. incomes left many families on strong financial footing at the end of 2021.

American savings peaked in late March, after $1,400 checks from the American Rescue Plan hit bank accounts nationwide. The account of the typical family has fallen between $700 and $900 in the months since, which still leaves most families at least $500 ahead, compared to precrisis levels.

In percentage terms, though, higher-income families are down less than 10 percent from their stimulus peak, while lower-income families are down almost 30 percent and have fallen farther behind in recent months. And research shows inflation has hit low-income families far harder than it has their high-income peers.

Rent inflation, in particular, “completely erodes the purchasing power of the extra few hundred dollars households may have in their bank accounts,” said Camelia Kuhnen, a University of North Carolina economist who researches household financial behaviors. This financial squeeze makes it harder to pay the bills, even if bank balances appear healthy.

“I wish things were different, and I wish I could say that nowadays lower-income families face less financial fragility than before covid, but the reality is, they are worse off,” Kuhnen said.

That helps explain why the share of households that expect to be either “somewhat” or “much” better off in the coming year has hit its lowest level on record, according to New York Fed data.

The share of households behind on their bills remains exceptionally low, a separate New York Fed report shows, but as federal stimulus runs out and loans come out of forbearance, some households will be looking at a different financial landscape.

“The circumstances are changing. There is no sign that there’s going to be another round of stimulus,” the JPMC Institute’s Greig said, adding that child tax credit payments have ended and student loan payments are expected to resume in May. “Families will no longer be receiving the government support that boosted their incomes in 2020 and 2021,” she said.

The JPMC Institute data also showed families that received monthly child tax credit payments fared substantially better financially in the latter half of 2021 than families that did not get them. The last wave of payments went out in mid December. The institute does not yet have data on what happened to these families once that lifeline expired, but a separate analysis found that child poverty soared in January compared to December.

To further complicate matters, inflation means savings won’t go as far as they once did. Prices are up 8.9 percent since the pandemic began. But so far, higher prices have not deterred consumers.

While omicron caused a brief slowdown, consumer-focused businesses ranging from Starbucks to Lyft are bracing for what they say could be a massive spending surge. “There is a pent-up demand for Starbucks and for people wanting and longing to return to their normalized routine,” said John Culver, the coffee chain’s chief operating officer, on a recent earnings call.

“The thing that we’ve seen time and time again through the multiple stages of the pandemic is that every time the brand actually comes back a little bit stronger than before,” Cheesecake Factory chief financial officer Matthew Clark said on another earnings call.

At Lyft, CFO Elaine Paul, said the company had seen a similar pattern. Throughout the pandemic, demand for getting out and about has built up as cases rise, and it has been unleashed when the economy opens up again.

“As people can go out safely and have more places to go, whether to bars, restaurants, sporting events or concerts, that’s exactly what they do,” Paul said on a recent earnings call.

Some of that extra savings, however, may not be spent anytime soon. Many say consumers are keeping more in the bank as insurance against rising uncertainty. In St. Albans City, Vt., John DeMarinis, 68, owns Boston Tailoring, a dry-cleaning and alterations business that has been in his family for more than a century, but like a lot of dry cleaners, he’s seen business dry up during the pandemic.

DeMarinis said that while people aren’t short on cash, he believes the chaos caused by the global pandemic has caused many to be more careful with their spending.

“I think they have money, you know what I mean? The government stimulus money and the money they were given for the kids’ supplements — I think they helped out people a lot, and I think people financially are probably better off now than they were before the pandemic,” he said. But “they’re being a little bit more cautious with what they’re spending money on.”

Economists agree that between the pandemic and inflation, even the most optimistic Americans are likely to keep extra cash in their savings account to cover unexpected crises.

“We don’t know what the year is going to bring,” Greig said. “We don’t know if there’s going to be a fourth surge or there’s going to be a new variant. And so the idea that some families are stockpiling and saving for a rainy day just feels pretty rational at this point.”

A typical stimulus payment, such as those during the Great Recession, is intended to goose consumer spending and stimulate the economy. The first pandemic stimulus was unusual, said Jonathan Parker, an economist at the Massachusetts Institute of Technology, because spending opportunities were limited when checks went out.

“When they sent out checks in April, everyone was worried about the pandemic. They had stopped going out to eat. They were sitting around at home, streaming television,” Parker said. “They’re not going to spend that money, there’s not much for them to spend on. They had less expenses, so they were already saving more than they used to save.”

This helps explain why people were much slower to spend their government checks during the pandemic than they were during similar programs in 2001 and 2008, according to a new analysis from Parker and his co-authors, Bureau of Labor Statistics economists Laura Erhard and Jake Schild, and University of Michigan economist David Johnson.

To accurately measure savings, the JPMC Institute data only includes those with bank accounts and income (of at least $12,000 a year) during the past three years. That sample leaves out many of the people who needed the stimulus most and who, according to Parker’s research, were mostly likely to rapidly spend the payments as they arrived. That population may still be struggling, but it won’t be reflected in today’s data.

“We had a social safety net with holes,” Parker said, “By sending out money really broadly, we would be sure to reach those people who might otherwise risk falling off into very bad times as we shut the economy down to control the virus.”