For millions, their finances actually aren’t so grim
More Americans changed habits, managed debt
Despite historic job losses, most Americans have fared well during the pandemic.
A year into the coronavirus pandemic, Megan McClelland is surprised by how steadily her credit and finances have improved.
“At first, it felt like doom and gloom,” says McClelland, 35. “But now I feel like I finally have more financial security.”
McClelland, a high school counselor in Petaluma, California, carries student loan debt from putting herself through both college and grad school while working multiple jobs. More recently, she worked a side gig at a seafood restaurant in a hotel to sock away extra money.
When she was laid off from the restaurant last spring, McClelland used her $1,200 stimulus check to meet with a financial advisor who showed her how to pay down her student debt while prioritizing saving for the future.
McClelland, who already has a 403(b) retirement plan through her employer at a public school, and opened up a Roth IRA and a high-yield savings account to stash more money into her nest egg.
“The pandemic forced me to be smarter with my money,” McClelland added. “The past year has been so challenging on everyone, but I’m feeling more hopeful.”
“The pandemic forced me to be smarter with my money.” Megan McClelland High school counselor
Consumers made positive financial habits in pandemic
McClelland isn’t alone. Americans made smart choices with their money at the start of the pandemic, according to Credit Karma, which provides consumers online tools to improve their finances. Payment delinquencies fell, consumers paid down debt and credit scores stayed relatively flat or even rose among certain score bands, says Colleen McCreary, chief people officer at Credit Karma.
This was helped in part as trillions of dollars in stimulus aid from Congress and the Federal Reserve propped up an economy gripped by recession.
“Americans are doing better financially than they think,” says McCreary. “The stimulus payments helped people pay down debt and make on-time credit card payments. There have also been fewer opportunities to spend money during the lockdowns, which
has helped people save.”
As soon as Camara Queder received all of her stimulus checks, she knew what she would do with them: invest.
Queder, a 43-year-old single mother who lives in Boston, Massachusetts, used her payments to help max out her Roth IRA for both 2020 and 2021. She also deposited all three of the stimulus checks she received for her 11-year-old son into a custodial account to get him started investing early.
It felt like a relief, she says, after she spent years paying off her student loan and car debt through couponing.
“It feels great,” says Queder, a customer relations representative at an analytical-equipment maker. “I want to teach my son all of the financial lessons I didn't learn.”
Americans save more
Consumers also are prioritizing saving in an effort to be more prepared for the next economic crisis, according to McCreary. In aggregate, Americans have saved an extra $2 trillion during the pandemic and put away 13.6% of their income in February, government data show. That's down from a record 33.7% last April but well above the prepandemic level of about 8%.
A quarter of Americans reported they saved money during the crisis, Credit Karma data show. Of those that were able to save, half were able to stockpile more than $1,500. That’s a lot considering almost 40% of Americans wouldn’t be able to cover a $400 emergency expense, according to the Federal Reserve.
"The pandemic has really inspired people to think about their finances and build a cushion just in case something else happens again in the future," says McCreary.
More than a third of Hispanic respondents said that since the emergence of COVID-19, they have been able to save money, compared with 26% of Black and 22% of white respondents, according to Credit Karma.
The majority of consumers were able to maintain or improve their credit scores in the second half of 2020, says McCreary. About 82% of Credit Karma members saw their credit score rise or remain the same in that time span. And nearly a third saw their score increase.
Financial pain still lingers
To be sure, although Americans are feeling more optimistic, many are still struggling financially.
Although job growth is expected to build in the coming months thanks to vaccinations and another round of stimulus, economists say that it may take several years for the labor market to heal. So far, the U.S. has recovered 13.9 million, or 62%, of the 22.4 million jobs lost last spring, and is still 8.4 million below the pre-pandemic level.
Deep financial scars have been inflicted, with low-income households, minorities and women suffering job losses, which have widened the divide between haves and have-nots.
“There’s a tale of two cities across the U.S. in finances,” says McCreary. “One group can save money and pay down debt, likely people in jobs where they’ve been able to work from home. But then there’s this other population who is feeling the pain from the trickle down effects of unemployment.”
Fifty-one percent of Hispanic respondents, for instance, say their financial situation had worsened as a result of the pandemic (51%), compared with 39% of Blacks and 35% of whites, according to Credit Karma.
Not everyone feels financially secure
Although a majority of middle-income families continue to feel positively about their financial situation in the face of COVID-19, underlying economic vulnerabilities have surfaced, according to the latest Middle-Income Financial Security Monitor from Primerica.
It conducts a quarterly national survey to monitor the financial health of those with annual household incomes of $30,000-$100,000.
About 57% of respondents say their financial situation is in good shape, while 59% say their income is falling behind the cost of living. More than half don’t have savings to go beyond three months of living expenses.
“Stimulus checks can help shore up people’s finances, but it’s only temporary,” says Glenn Williams, CEO of Primerica. “A stimulus check will help them for a period of time, but it’s not a long-term answer.”
About a third of consumers say their financial stability depends on a third stimulus check, according to Credit Karma. Nearly 50% of Black respondents reported their financial stability depended on a third stimulus check, compared with 43% of Hispanic and 31% of white respondents.
Affluent Americans achieve milestones
The split-screen America created by the coronavirus recession left many people financially intact and others facing lasting scars. One group is saving and spending while the other counts on unemployment and stimulus.
For instance, nearly half of affluent Americans have been getting their financial lives in order during the past year, according to recent data from Bank of America. It surveyed more than 2,000 affluent Americans with investable assets between $100,000 and $1 million.
Despite challenges imposed by the pandemic, about 84% of respondents believe they are on track to reach or have already achieved several financial milestones earlier in life than their parents.
The vast majority of affluent Americans also are prioritizing many traditional milestones in life, including owning a car (98%), owning a home (97%), saving their target amount for retirement (96%) and paying off credit card debt (94%), the survey found.
"This is not a time to give people cookie-cutter financial advice," says Williams. "You have to really look at people’s individual needs, goals and the impact the pandemic has had on their family to figure out what challenges they may need help overcoming through the advice of a financial professional."
Families save for future but may need to do more
More than 70% of families are confident in their knowledge of financial fundamentals such as paying down credit card debt, building good credit, budgeting and saving, Primerica data show.
But they are less confident in setting up investment accounts. They also are less likely to know how to buy life insurance (57%).
“What keeps people awake at night is their personal health, finances and being unemployed,” says Williams. “If you prioritize expenses, get your debt under control, protect your family’s income with life insurance and start a small investment program, it will better position you to withstand the next economic crisis.”