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More Americans Are Putting Less Money Into Their Savings Accounts Since COVID-19
Economic recessions affect everyone to some degree, but those with the least income in their respective industries are hit the hardest. Since COVID-19, we’ve seen this happen on a massive scale. Now, lower-income Americans are struggling to save money, leading to worries about foreclosures, evictions and debt collection. A new Pew survey shows:
- Only one-third of adults laid off due to COVID-19 got their jobs back
- 50% of adults laid off due to COVID-19 are still unemployed
- Almost half of low-income Americans are struggling to pay bills since COVID-19
- One-third of Americans had to use their savings or retirement account to pay for bills since the pandemic
The pandemic has revealed underlying issues affecting lower-income families and their ability to save. It’s important to understand these contributing factors, so those impacted can better navigate their financial struggles and start saving.
Who has enough to weather the COVID-19 crisis?
The government initially stepped up to try and reduce the economic impact of COVID-19 by increasing unemployment to $600 per week for those who qualified. Yet, that only lasted for several months, leaving many Americans still in dire need of financial support.
And this issue isn’t new. Despite federal and state unemployment benefits, even before COVID-19, Americans, in general, have not been able to save enough to build wealth or security. Even those financially fit to do so are struggling to save right now. In fact, 36% of Americans say they’re saving less since the outbreak and 44% are saving the same amount. Only 19% are actually saving more money.
The survey also shows that one-third of Americans who were laid off didn’t get their jobs back. And another 50% of laid-off workers are still unemployed. So nearly half of U.S. adults have to tap into their retirement and savings accounts to cover monthly expenses.
[ Read: The Best Savings Accounts ]
It appears that if you’re not sitting on a large sum of cash, then you’re not prepared to weather the pandemic. And this is why we see a large number of lower-income families struggling to pay for necessities, such as rent and utilities.
“Many low- to moderate-income Americans are almost always in recession,” says Lauren Bringle, Accredited Financial Counselor at Self Financial. “So when a real recession hits, or in this case, a global pandemic, they are often the first people hurt and the last to recover. Chances are also higher that they have less in savings to carry them through a crisis.”
Factors that are impacting Americans’ savings plans
The pandemic plays a significant role in the financial hurt people are feeling today. However, there are other factors affecting lower-income (and even some middle-class) families’ ability to save.
The survey shows that nearly half of all Americans are struggling to pay housing and utility expenses today. COVID-19 did play a role in this, but there’s also an overlooked issue hindering low-income adults (especially those of color) from saving: public assistance programs. Although designed to help low-income families with financial assistance, these programs also come with asset limiting regulations, where the more you have, the less financial assistance you receive.
In other words, public assistance programs are penalizing families for saving. To address this, the ASSET Act was introduced to stop asset limits for the Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF) and the Low Income Home Energy Assistance Program (LIHEAP).
While the ASSET Act helps, it only puts a small dent into the economic issues low-income individuals continue to battle with.
Day-to-day expenses are soaring
The climbing costs of day-to-day expenses are impacting both lower-income and middle-class families. Middle-class life is more expensive than it used to be. The cost of necessities like child care, college and housing has steadily increased over the last 20 years, while salaries have remained stagnant. Even health care, which used to be affordable for middle-class families, is now eating up their savings.
Lack of income
“There are many reasons people are putting less in savings during COVID-19, including having their hours cut or wages reduced. Some companies have even put a hold on any bonuses, raises or promotions for the rest of 2020, which could reduce disposable incomes for many people,” adds Bringle.
[ Read: The Best High-Yield Savings Accounts ]
There’s also the ongoing debate over minimum wage and the income gap issues plaguing low-income households. The federal minimum wage today is $7.25. By gradually increasing minimum wage to $15 per hour, it could grant over 41.5 million workers an additional $5,100 per year — money that could go towards living expenses, as well as savings.
A small amount of savings can make a huge difference — for most
The issue Americans have with savings extends beyond their households. It’s a systemic problem that needs to be addressed by local governments. There are several ways federal and local governments can help its citizens save more:
- Offer universal basic income (UBI), which would periodically pay all citizens regardless of means or employment
- Increase unemployment insurance benefits
- Increase the federal minimum wage from $7.25 to $15
- Extend public assistance programs to those without dependents (and who earn a little more than the poverty line)
If low-income families can save even the smallest amount of money, it shows they’re able to cover their monthly expenses and still set aside cash. Over time, this will gradually place them in a more secure financial position.
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