Unexpectedly, amongst a jarring amount of job losses and shuttered small businesses, many Americans have spent the past several months of the coronavirus pandemic improving their own personal finances by saving more money or paying off lingering debt. Almost half of Americans have managed to increase their savings while experiencing the effects of COVID-19; this increase in savings is particularly remarkable given the economic downturn you’ve likely come up against in some manner.
How are people saving more?
Americans are saving more money now than before the pandemic for two main reasons:
- An increase in income from government aid and
- a decrease in spending from business closures and safety concerns.
Government aid through programs such as unemployment benefits and stimulus checks paid directly into citizens’ bank accounts mean that many people now have more money in their accounts than they did before the COVID-19 outbreak.
The second main reason accounting for increased savings is that their spending has decreased – more than half of Americans have reported such a decrease. For health and safety reasons, some are choosing to abstain from travel and restaurant dining, which frees up a substantial portion of disposable income for those individuals.
People are keeping more money than ever in their bank accounts to help themselves feel more financially secure during this time. Unfortunately, that reluctance to spend could have adverse effects on the recovery of the economy since a consumerist economy necessitates spending from the public.
Why are people saving more?
That’s how people are able to save more money than usual during the pandemic, but why are they doing so?
Some experts attribute the desire to save more during these times to the uncertainty of the strength of the economy in the future. While Americans may have more money in their pockets now because of decreased spending and increased aid from the government, people are not confident that additional income will persist in the future. Something that people have learned during the pandemic is just how quickly circumstances can change; now more than ever, you can have your job one day and be laid off the next.
Around 25% of Americans have struggled to make at least one payment because of coronavirus, whether that is a credit card payment or payment for rent or a mortgage. That struggle can largely be attributed to losses in household income. Some examples of a loss in household income include being laid off, being scheduled for fewer hours than usual, or even being forced to take unpaid time off.
With their increased savings, people have either been keeping that money in their bank accounts, or taking the opportunity to pay down any debts that they were previously holding on to. About one-third of people who have decreased their spending have been able to pay down their debts faster than they would have otherwise been able to, and over half of people who are now spending less because of coronavirus are able to keep more money in their savings accounts.
While the coronavirus pandemic has indubitably had many negative impacts for many industries and individual families, the increase in savings for many Americans is an unexpected, but welcome, silver lining.