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Americans are saving more during the pandemic — but there's still a huge demographic divide

The sharp division could emerge as a fault line in a post-pandemic economy dependent on robust consumer spending.
Image: A customer uses a bank card to make a contactless payment on a market stall.
The unwillingness — and inability — of Americans to spend on experiences and services during the pandemic has led to a shift in household balance sheets.Chris Ratcliffe / Bloomberg via Getty Images file

Nearly a year into the coronavirus pandemic, which has killed nearly half a million Americans, eliminated millions of jobs and derailed the nation’s economy, Americans are re-evaluating their personal finances. While people generally have more money in savings and less credit card debt, there are sharp demographic divisions that could emerge as fault lines in a post-pandemic economy dependent on robust consumer spending.

A new survey of more than 1,000 people from Bankrate found that just over half of respondents place a higher priority on growing their emergency savings than on paying down credit card debt, an increase of 7 percentage points from last year. About one-third of respondents said paying down debt was their top priority, a decrease of 6 percentage points.

The unwillingness — and inability — of Americans to spend on experiences and services led to a shift in household balance sheets. Provisional consumer credit data from the Federal Reserve published last week found that Americans shed an estimated $123 billion in revolving debt last year. In aggregate, the amount of outstanding revolving debt dipped below $1 trillion last May for the first time since September 2017, and has remained below that mark since.

Bankrate chief financial analyst Greg McBride said that the financial disruption so many people experienced — and are still, in many cases, enduring — as a result of the pandemic has prompted many to re-evaluate the importance of having free cash on hand in the event of a sudden loss of income or unexpected expense.

The financial disruption has prompted many people to re-evaluate the importance of having free cash on hand in the event of a sudden loss of income.

“When economic fortunes turn, there's a realization that what people have or have not accumulated for emergency savings could leave them in a tight spot,” McBride said. “Just as with the financial crisis, the recession brought on by the pandemic has underscored the need for emergency savings and the recognition on the part of many households that what they have is not sufficient.”

With 16 percent of respondents reporting they had neither credit card debt nor savings, this could make them vulnerable to predatory lending practices if faced with a financial emergency.

The average interest-accruing credit card APR is 16.28 percent, according to the Fed, and it’s even more expensive than that for many people to borrow. Personal finance platform WalletHub found that average interest on new card offers is nearly 18 percent, and the average APR available to people with only fair credit is higher than 23 percent.

Millennials — those in the 25-40 age bracket — and women are more likely to have credit card debt that eclipses their savings, Bankrate found. Black and Latino borrowers also have more debt: While 26 percent of white respondents said they have more debt than savings, 37 percent of Blacks and 32 percent of Latinos said the same.

This is unsurprising given the unequal nature of the pandemic impact and the economic recovery thus far, said Mark Zandi, chief economist at Moody’s Analytics. Initial job losses as well as ongoing closures and a growing string of business failures have been concentrated in the lower-wage sectors of services industries like travel, restaurants and retail that historically have provided employment to large populations of minority workers.

“Many have lost their jobs at some point during the pandemic, rely on government support, have debt and likely don’t own any stocks or their homes," Zandi said.

Middle-income Americans also face greater challenges: Bankrate found that 34 percent of respondents with household income from $30,000 to $49,900, as well as 35 percent of those who earn $50,000 to $74,900, have more debt than savings.

“Despite a lot of what we have seen, there’s still a lot of debt out there,” said Nick Shields, senior analyst at Third Bridge.

These households didn’t have the same kind of pandemic opportunities to deleverage as their wealthier peers, Zandi said. “Higher-income households have financially navigated the pandemic well, and since they aren’t able to spend as much due the pandemic, they are saving much more and using their savings to in part pay down their debt,” he said. “They have held on to their jobs during the pandemic, ramped up their savings during the pandemic, and benefited from higher stock prices and housing values.”

Bankrate’s results corroborate this: The survey found that 70 percent of respondents with household incomes of $75,000 and higher have more savings than debt. This will power their spending in the coming months as Covid-19 vaccine distribution accelerates and activities such as travel and live events resume.

Higher-income households have financially navigated the pandemic well, but middle-class and lower-income Americans don’t have the means to participate in the recovery.

“Moving forward, I think what you’ll see is that bifurcation,” Shields said. “Consumers who paid down a lot of their debt will be a lot more freewheeling in the purchases they make. … I think the big question is, for those consumers who don't have as much savings and still have some debt coming out of the pandemic, what are they going to do?”

An analysis of checking account balances by JPMorgan Chase & Co. found that lower-income families, although they derived a significant benefit from the April stimulus payments, also had the sharpest decline in their checking account balances at the median since then. With roughly two-thirds of the economy powered by consumer spending, the country needs more than just the rich to fly, book hotels, eat out, buy movie tickets and attend ball games.

For economic activity and employment to rebound to anywhere near pre-pandemic levels, the broadest possible cross-section of Americans needs the ability and willingness to spend, McBride said, adding that people have more confidence, and more reliable consumption habits, when they have money in the bank.

“If you have savings now, that speaks to the sustainability of spending going forward if you have some money put away for the unplanned,” he said.