Middle- and Lower-Income Americans See Faster Wealth Depletion: Report

A customer shops at a Safeway store in San Francisco on June 11, 2024. Justin Sullivan/Getty Images

Middle- and lower-income Americans accumulated less wealth during the COVID-19 pandemic than their upper-income counterparts and are now running out of disposable wealth faster, according to a Federal Reserve Bank of San Francisco report.

Beginning in 2020, American households accumulated more liquid assets—cash, checking, and savings accounts, and money market funds—than they would have if the COVID-19 pandemic had not happened, the Aug. 12 report said.

Upper-income households acquired more relative to other classes. Fed researchers calculated how much wealth each income class would have accumulated in a “no-pandemic” scenario. They compared it with wealth gained from pandemic-era government income support and changes in consumption.

By early 2021, households in the top 20 percentile had owned 11 percent more liquid assets than in a “no-pandemic” scenario. The bottom 80 percent owned only an additional 6 percent in assets.

Fed researchers estimated that middle- and lower-income households spent all the wealth gained during the pandemic by late 2021. Among higher-income households, the pandemic-era funds lasted a bit longer, until the second half of 2022.

As of the first quarter of 2024, the liquid asset level of higher-income households is just 2 percent less than it would have been in the absence of the pandemic. For middle- and lower-income households, assets were 13 percent below the “no-pandemic” scenario.

“Depleted household liquid wealth was accompanied by a notable increase in credit card delinquency rates, particularly for middle- and lower-income households,” the researchers said.

“Smaller financial cushions and heightened credit stress for households at the bottom 80 percent of the income distribution pose a risk to future consumer spending growth.”

While the pandemic wealth may have run out, many Americans are positive about their financial situation, according to a survey from the Federal Reserve Bank of New York.

Perceptions about households’ current situations improved in July from a year ago. In addition, respondents said they felt it would be easier to obtain credit in the future than at present.

Interest Rates

The San Francisco Fed report comes amid concerns about high interest rates set by the U.S. Federal Reserve. The longer interest rates remain elevated, the longer credit card rates could remain high, stressing household budgets and leading to more delinquencies.

The Fed has kept interest rates in the range of 5.25 to 5.5 percent for more than a year, giving no indication of when it would begin reducing rates.

Following its July meeting, the Federal Open Market Committee said that unless there was greater confidence in inflation moving “sustainably” to its target rate of 2 percent, it wouldn’t be “appropriate” to lower interest rates. The 12-month average inflation rate has held at or above 3 percent since 2021.

High interest rates can be a double-edged sword for many households, depending on their savings and debts.

Rising rates make monthly debt repayments more expensive. That puts strain on households with little to no savings but significant loans. At the same time, increasing rates also means that households with savings accounts will benefit more.

In a recent Bankrate survey, 45 percent of respondents said rising interest rates have forced them to save less. A smaller share, 19 percent, said they were saving more because of higher rates.

“Inflation has been a key culprit standing in the way of further progress on the savings front. Fortunately, rising interest rates have also provided more generous returns on savings,” said Bankrate senior economic analyst Mark Hamrick.

The survey found that over a third of Americans had more credit card debt than emergency savings as of January.

On the plus side, the majority had more savings than such debt. Generationally, millennials and Gen Xers were more likely to have credit card debts that exceeded savings.