Households’ Covid-era liquid wealth has ebbed, leaving historic debt
A newly published study by the Federal Reserve Bank of San Francisco reveals that the substantial liquid wealth US households sopped up during the pandemic has run out, particularly for those in the lower- and middle-income bands of the economic spectrum.
That depletion is leading to an increase in credit card delinquencies, the bank said, raising concerns about the future of consumer spending and economic stability.
According to the research published Monday, households across income levels saw a surge in liquid wealth—cash, checking and savings deposits, and money market funds—due to government support and changes in spending behavior during the pandemic.
However, the study shows that this financial windfall has been spent, with significant differences between income groups.
Higher-income households, which represent the top one-fifth of the income distribution, experienced the most significant increase in liquid wealth. By early 2021, these households had accumulated 11 percent more liquid assets – a $1.1 trillion surplus, the bank calculated – than projected in a “no-pandemic” scenario.
“Higher-income households held pandemic-era liquid wealth until mid-2022,” the report stated.
Meanwhile, middle- and lower-income households, which occupy the bottom four-fifths of the income distribution, saw a smaller increase in liquid wealth, peaking at an additional 6 percent above pre-pandemic expectations. According to the report, these households used up the entirety of that pandemic-era windfall, an estimated $270 billion, by late 2021.
Focusing on money market funds, the research estimated that higher-income households had one-fourth of their total liquid wealth in those short-term interest-bearing investments, compared to
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