American families are on their own now that pandemic-related stimulus funds have run out.
Consumers have withdrawn those excess savings over the past three years, using the money to deal with inflation and other pressures. But the excess savings, in total, officially dried up earlier this year, noted Jeffrey Roach, chief economist for LPL Financial in a recent report. The money was distributed in three main rounds from early 2020 to early 2021.
As relief funds have dried up, more people have struggled to pay bills, bank deposits have fallen, credit card balances have soared past $1 trillion and other financial problems have worsened. However, the depletion of stimulus funds may not be enough to slow the economy too much, and cash-strapped consumers have options to improve their situation, if they haven’t tried them yet.
Roach indicated in his commentary that excess savings peaked at $2.1 trillion in August 2021, citing data from the Federal Reserve System, the Bureau of Economic Analysis and other sources.
At the start of the pandemic, consumers faced some restrictions on spending their money, such as on travel — another factor that helped fill their bank accounts. But since the peak three years ago, Americans as a group have spent the excess fairly steadily. Many made up for lost time by consuming goods and services.
Could depleted stimulus funds stall the economy?
Consumer purchases account for about 70% of economic activity.
With excess savings depleted, it raises the question of whether spending will slow enough to hurt the economy, although many economists, including Roach, are still not predicting a recession anytime soon.
One favorable factor, he says, is that many homeowners refinanced their mortgages years ago and are taking advantage of lower borrowing costs. “The additional money saved from lower mortgage costs will likely offset the decline in excess savings,” he predicted.
However, other economists have cited rising rents and mortgage payments as factors that are now contributing to financial stress for many more.
“Consumers are continuing to adapt to the post-pandemic world,” said George Hammond, a research professor at the University of Arizona. They deal with lower savings in the absence of incentive payments, but still face high prices for many items. Hammond cited declining housing affordability in states such as Arizona, along with rising food and gasoline prices, as headwinds.
Credit card debt now tops $1T
Many families had already exhausted their stimulus payments last year, if not earlier, said Amy Robbins, an associate director at Take Charge America, a Phoenix-based nonprofit that offers debt and credit counseling.
For many, the loss of stimulus funds and the decline in personal savings were exacerbated by job losses.
“So we guided clients in developing a new budget, reducing expenses, selling assets or enrolling in a debt management plan to bridge the gap,” she said in an email.
While jobs have generally been plentiful, many consumers have struggled to make ends meet amid low wage growth that hasn’t kept up with rising costs, she added. Also, some individuals struggle with student loan payments, while others have trouble affording housing, either from rising rents or high-interest mortgages.
Not surprisingly, some families have responded by relying on credit cards.
Total card balances have been at or near record highs of more than $1.1 trillion in recent quarters and are up about $250 billion from a few years ago. Robbins suggested that people struggling with high credit card debt seek a free counseling session from a nonprofit agency.
“In many cases, consumers can pay off debt on their own, but they need guidance on how to do that with a new budget and lifestyle changes,” she said.
Will running out of pandemic stimulus funds crash the economy? Like Roach, Hammond said he’s not alarmed by those savings drying up, though he expects muted growth in personal income to contribute to slower retail spending this year.
Bank balances are dwindling
The recent economic landscape has been a mixed bag for families. While the financial health of consumers has gradually improved over the past six months or so, the changes have been modest, and nearly half of Americans fall into the “vulnerable” category, stressed by high prices, according to a recent JD Power customer survey. of banks.
The study found that bank balances have been declining, with 53% of respondents saying they have less than $4,000 in combined checking, savings and other deposits at their primary bank.
In part, that reflects some customers moving money between banks in search of higher yields, lower loan rates, better rewards or other benefits, said Jennifer White, a senior consultant at JD Power for intelligence. banking. But it mostly reflects consumers struggling to keep up with rising costs. “They have to use deposits to bridge that gap,” she said.
The JD Power study estimated that 40% of bank customers earn less than 1% on their money, while 23% do not know what rate they earn. The report predicts that bank customers will become more active in seeking higher yields as a way to gain any advantage they can.
White suggests that consumers build an emergency savings fund with an account that yields at least 3%. She also recommends seeking additional help with banks, such as online budgeting tools that can track expenses.
“These tools are built for everyone, not just the rich,” she said.
Contact the writer at russ.wiles@arizonarepublic.com.
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