Pandemic Savings Unveiled 2020-2023: Where Did the Lowest Earners’ $130 Billion Go?
Discover the surprising truth behind the pandemic savings of lower-income households from 2020 to 2023. Despite rising living costs, many have retained more cash than expected, reshaping assumptions about financial resilience.
Diccon Hyatt is a seasoned financial and economic journalist who has extensively reported on the pandemic economy over the past two years. His clear and accessible writing breaks down complex financial issues, focusing on how economic trends affect individual finances and markets. He has contributed to U.S. 1, Community News Service, and the Middletown Transcript.
What became of the pandemic savings accumulated by lower-income households? Surprisingly, a significant portion remains unspent, challenging common expectations.
In the wake of COVID-19, U.S. households collectively amassed unprecedented savings due to government stimulus and limited spending opportunities.
However, the fate of these funds is puzzling. Moody’s Analytics' recent analysis suggests that lower-income households retained much of their extra savings.
If accurate, this indicates that lower-income individuals have managed recent inflationary pressures better than widely assumed, potentially enjoying more financial stability.
Economist Scott Hoyt analyzed Federal Reserve asset and debt data alongside income and spending figures from the Bureau of Economic Analysis. Initially skeptical, Hoyt acknowledged the robustness of his findings after thorough review.
“At first, I thought it was unbelievable,” Hoyt said. “But the data shows these groups received substantial income boosts and benefited from labor market gains, making the findings plausible.”
Household savings peaked in Q3 2021, reaching approximately $2.4 trillion above pre-pandemic levels. The bottom 10% income group held about $128.1 billion of this.
By Q3 2022, total excess savings declined to $1.7 trillion, yet the bottom 10%'s share increased slightly to $132.4 billion, demonstrating notable resilience despite being a small fraction compared to higher earners.
Conventional wisdom suggests that rising costs for essentials like housing, fuel, and groceries would have depleted lower-income savings rapidly, given their higher spending proportions on necessities.
Previous studies confirm that many U.S. households have drawn down pandemic savings to combat inflation. However, data limitations prevent precise measurement of savings by income group, requiring assumptions in analyses.
“Detailed household-level data is lacking, making definitive conclusions challenging,” Hoyt explained.
Nonetheless, several factors support the model’s findings. The pandemic-era labor market favored low-wage workers, with inflation-adjusted wages for the bottom 10% rising 9% between 2019 and 2022, according to the Economic Policy Institute.
Labor shortages in low-paying sectors like food service forced employers to increase wages, benefiting lower-income groups. Data from the Bureau of Economic Analysis shows the bottom 70% of households secured a larger share of income growth from 2020 to 2021, often at the expense of higher earners.
Additionally, expanded Medicaid coverage during the pandemic reduced out-of-pocket healthcare expenses for millions, easing financial burdens on lower-income families.
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