» US households in better financial shape at the end of 2021 than before the pandemic

Contact: Lauren Slagter, 734-929-8027, [email protected]
Jared Wadley, [email protected]

U.S. households were in better financial shape, on average, at the end of last year than in 2019, despite widespread unemployment and economic uncertainty during the COVID-19 pandemic, according to a new report from the University of Michigan.

UM Poverty Solutions researchers attribute this financial stability to the federal government’s unprecedented response to the cash safety net during the pandemic, which included expanded unemployment insurance, a series of economic impact payments (also called dunning) and monthly payments. to families with children through the expanded child tax credit.

The analysis found that the percentage of Americans with poor credit scores fell in 2021 to the lowest rate in at least 16 years, and available measures of liquid assets indicate that lower-income households had more cash at the end of 2021 than in 2019, even after taking inflation into account.

However, early data from 2022 suggests that the expiration of COVID-19 safety net policies could negatively impact families’ financial well-being in the coming year.

“Inflation remains a big concern, but it needs to be seen in the broader context of the historic success of the economic recovery related to the COVID-19 pandemic. children weighs more heavily on the financial well-being of families than inflation,” said Patrick Cooney, deputy director of policy impact at Poverty Solutions.

Cooney co-wrote a new policy brief with Poverty Solutions faculty director H. Luke Shaefer and Samiul Jubaed, data and policy analyst at Poverty Solutions. The report builds on Poverty Solutions’ ongoing analysis of levels of material hardship during the pandemic, which refers to households’ ability to afford basic necessities.

The researchers tracked two types of material difficulties, based on responses to the US Census Bureau’s Household Pulse Survey. Food insufficiency is measured by the number of households that reported not having “often” or “sometimes” enough to eat in the past seven days, and financial instability is measured by the number of households that reported that it was “very difficult” to pay for usual household expenses over the past seven days. the last seven days.

During the pandemic, reported hardship levels hit a low point in April 2021, following passage of the American Rescue Plan Act in March 2021. Material hardship increased slightly until June 2021 before falling back, gradually for adults without children and strongly for adults with children. . Hardship rates then rose slowly after August 2021, when extended unemployment assistance expired, although the rise was less severe among adults with children.

Historically, adults with children have experienced higher levels of material hardship than adults without children. But from July 2021 to January 2022, that gap narrowed, coinciding with monthly Child Tax Credit payments. In February 2022, after Child Tax Credit payments ended, households with children experienced a larger increase in levels of food insufficiency and financial instability compared to adults without children.

“In just six months in 2021, the expanded child tax credit has delivered on its promise to reduce hardship and income poverty for households with children. By implementing cash-based and more universal safety net measures, we have put in place the most successful response to an economic crisis in our country’s history,” said Shaefer, Professor Hermann and Amalie Kohn of Social Justice and Social Policy, who is part of a group of poverty scholars who have long studied the potential of an expanded child tax credit to reduce child poverty.

Other measures of financial health, including credit scores and bank account balances, indicate that U.S. households were in good shape overall at the end of 2021. Since 2013, the average credit score of U.S. adults s improved steadily, increasing between one and four points per year before rising seven points in 2020 and rising again in 2021. During the Great Recession of the late 2000s, the average credit score declined. In 2021, 15.5% of American adults had bad credit, up from more than a quarter in April 2010, following the Great Recession.

The researchers also found that the bank account balances of low-income households increased by more than 50% by the end of 2021 compared to pre-pandemic levels, when adjusted for inflation. From July to December 2021, households receiving child tax credit payments saw steady gains in their bank account balances, which contrasts with greater volatility in account balances at other times in the year. pandemic.

“The data indicates that the consistency of child tax credit payments has provided households with children with some stability,” Jubaed said.