by Riley Cook
A recent report by the Pew Research Center sheds light on the financial ramifications of the COVID-19 pandemic on U.S. households, revealing disparities in the wealth increases among different racial, ethnic, and economic groups.
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The findings suggest that while overall median household net worth increased by 30% between 2019 and 2021, the impact was not uniform across various demographics.
During the pandemic, lockdowns and remote work reduced impulse spending opportunities, allowing employees to bolster their savings by eliminating expenses like commuting costs. As a result, the median household's net worth rose to $166,900 by 2021. However, the increases were unevenly distributed.
White and Asian households experienced the most significant gains in total dollars during this period. White households started the study 13 times wealthier than black households, and this gap narrowed slightly by the end of 2021, with white households being nine times wealthier. Wealth disparities were more pronounced among lower-income households.
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Low-income white households had 21 times the wealth of low-income black households. Although black households experienced a financial boost during the pandemic, a significant portion still faced debt. One in four black households and one in seven Hispanic households had zero wealth at the end of 2021, despite making progress in reducing their debt. Poorer black households managed to decrease their debt by approximately $6,000 over the three-year period.
While Hispanic households started and ended 2019-2021 with an average net worth of $0, they made progress in reducing their $1,100 debt. The average net worth for black and Hispanic households by the end of 2021 was $27,100 and $48,700, respectively.
In contrast, the least wealthy Asian and white households concluded the pandemic with net worths of $8,900 and $4,700. However, these families may now be under increased stress compared to 2019, as factors that boosted wealth during the pandemic have reversed. Rising inflation, increased interest rates, and higher living costs pose challenges for low-earning families.
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The Pew report highlighted that inflation became an economic headwind in 2022, reaching a peak of 9.1% in June. While inflation has cooled since then, the recent 3.2% increase in prices indicated that challenges persist. Borrowing money has become more expensive, with interest rates at 5.25% and 5.5%.
The housing market has also shifted, with increased rents and mortgage rates posing risks for consumers. Asian households were the least likely to face higher living costs, as they held the most wealth overall from 2019 to 2020.
High-earning Asian households saw a substantial increase in net worth, growing by 43% to $320,900. This outpaced the second-highest earners, white households, which experienced a 23% increase to $250,400. The average high-earning Asian household brought in $1.1 million, while the average high-earning white household earned $923,300.
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Upper-income black and Hispanic households had net worths of $285,000 and $350,000, respectively. The Pew report excluded the poorest 1% and top 1% of earners from its rankings.
Among all American households, an owned home was the most valuable asset, accounting for about two-thirds of the median household's net worth. Homeownership rates were highest among white households, followed by Asian, Hispanic, and black households.
Asian households were the most likely to have investment and retirement accounts. However, inflation has impacted these savings accounts, with balances plunging 4% in the latest fiscal quarter due to an increase in hardship withdrawals.
Fidelity Investments reported a decline in the typical 401(k) balance from $112,400 in the second quarter to $107,700 in the latest three-month period. IRA balances also dropped from $113,800 to $109,600 in the same period. Inflation and financial stress were cited as reasons for the decline in savings account balances.
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The Pew Research Center's report provides insights into the complex and varied impact of the pandemic on the wealth of U.S. households, emphasizing the importance of considering demographic factors in understanding these financial trends.