New Data Shows Government Support Helped Lower-Income Households Avoid the Worst of the COVID-19 Financial Fallout, but Warning Signs are Ahead
Today, an analysis of a recent nationwide survey of lower-income households was released that provides insights into how they have weathered the economic impact of the COVID-19 pandemic thus far. The survey also paints a picture of how the financial situation of many of these households could drastically worsen as federal government assistance fades or expires, and there is no clear path to an agreement in Congress on the next stimulus package.
Our organization, Prosperity Now, fielded a survey among 2252 households across the country with incomes below $50,000 to better understand how they were managing their financial lives through this crisis. We asked questions about covering basic expenses, government assistance, and their use of various financial products and services.
Nearly 40 percent of these households felt worse off financially as a result of the pandemic. Almost half of the households surveyed reported being unable to cover at least one basic expense, such as housing, food, or medical care. But most of these households were able to avoid even more dire financial outcomes thanks to government assistance.
In March 2020, Congress passed the the $2.3 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provided many essential financial supports for American families and workers, including the economic impact payments, enhanced unemployment insurance benefits, federal student loan relief, and a moratorium on some evictions and foreclosures.
When breaking down the financial situation numbers by race or ethnicity, White and Black respondents reported feeling worse off at roughly the same rate, about 35 percent. Latino and Asian respondents, however, reported feeling worse off at much higher rates, 44 and 47 percent, respectively. Latino and Asian households were also more likely to report a reduction in household income, 58 percent and 57 percent respectively, compared to 33 percent for White households and 47 percent for Black households.
One driver behind this could be the explicit exclusion of many immigrant households from financial supports in the CARES Act, as well as other federal government supports and benefits. The failure to provide similar financial relief to these households has not only left them worse off financially, it has also forced them to take greater risks working to support their families. That, in turn, could be helping to fuel the spread of the virus overall across the country making us all less safe and worse off.
For households that were eligible for these government supports, the economic impact payments were one of the most important sources of relief. Specifically, it was one of the four most common strategies households used to navigate the crisis, along with using savings, skipping bill payments, and filing taxes to obtain a refund. However, the lowest-income households, with incomes below $25,000, were less likely to have received the payments because they may not have had to file federal income taxes or could not have bank accounts, which would delay the delivery of their payments.
As many as 12 million low-income households eligible for the payments have still not received them. Lower-income Black and Latino households were also roughly eight percentage points less likely to have received their payments than their White peers. Despite important steps taken by both the IRS and Treasury Department to reach these households and get them their payments more quickly over the last several months, more needs to be done to ensure they get the original payments immediately and additional payments arrive much more quickly.
Beyond government supports, almost 36 percent of the survey respondents also reported turning to at least one credit product, anything from credit cards to payday loans, to weather the crisis. Black, Latino, and Asian households were all more likely to apply for alternative financial services from nonbank financial companies than White households.
These products can be an essential lifeline for helping families survive the financial crisis avoiding some of the worst outcomes, such as eviction, hunger, and job loss. However, in some cases, they actually can leave families in an even worse financial situation than they began, trapping them in debt. The Consumer Financial Protection Bureau recently made families more vulnerable to predatory financial products like this by rolling back most of its landmark payday lending regulations last month in the middle of the crisis.
With the lack of an effective nationwide strategy to manage the COVID-19 virus, the warning signs in this data are clear. Not only is a more limited package of economic support not prudent, but Congress should also be going even further than they did in the CARES Act.
Regular economic impact payments should be on the table with an improved and quicker method of delivery for the most vulnerable households. Economic supports should also be provided to immigrant households on both moral and practical grounds. State and local governments will need a massive financial infusion from the federal government as well, if they are to have the resources they need to take action as well and avoid another wave of layoffs.
This crisis has already taken a disproportionate toll on the most vulnerable groups in our society. The federal government needs to do the right thing and act quickly and aggressively to avoid even worse financial and health outcomes.
David Newville is vice president of policy & applied research and Guillermo Cantor is the director of applied research at Prosperity Now