Financial Responses to COVID-19: Results May Vary

It’s the eleventh month of the pandemic and despite the newly approved Moderna and Pfizer vaccines, U.S. workers are still suffering. A mere $600 stimulus check, included in the latest pandemic relief bill, will not be enough for millions of Americans. In a country where 42% of households have reported inadequate savings in the case of a drop in income, the financial repercussions of COVID-19 will not be equal for all.

In the first study where administrative bank data was linked with race, researchers found that, although household responses to adjustments in income don’t vary by race or ethnicity, the impact of the income adjustment does.

The University of Chicago, in conjunction with the JPMorgan Chase Institute, released a new working paper that details how white, Black, and Hispanic households adjust to income shocks. The data suggests that the historic racial wealth gap will likely affect how well-off households are in the aftermath of the pandemic. 

The researchers analyzed Chase bank account records from 2012 to 2018 for 20 million households, comparing income, liquid wealth, and consumption habits to voter registration and self-reported race and ethnic identification. The study aimed to investigate the month-to-month impact of household income changes.

The authors found that Black and Hispanic households adjusted their consumption 50 and 20 percent more, respectively, than white households who faced similar financial income changes. This difference is reported to be explained by the households’ liquid wealth. Although the income volatility has welfare costs for all groups, the impact on Black and Hispanic households is greater than white households. This vulnerability is profound considering the length and economic impact of the prolonged pandemic. 

Although the paper’s major takeaways highlight systemic financial differences between groups, they do so only with regards to households’ liquid assets and the households’ use of Chase Bank. Meaning, the study only utilized bank account and credit card spending at Chase alone, so the data did not include financial movements like familial help and non-Chase credit card spending. Additionally, in-kind transfers like SNAP were not observed, and only temporary income changes that affected households’ month-to-month influenced the findings. Some researchers have suggested that there is a need to study longer-term unemployment to investigate how these racial differences play out over time. 

The study sample featured households in urban areas of Florida, Georgia, and Louisiana where Chase has physical bank branches. Although Jim Crow laws historically made it difficult for Black households to accumulate wealth, Deep South states also feature low average incomes for white households, with Fla., Ga., and La., being no exception. Nationally, Black households earn 65 cents on the dollar compared to white households. In this study’s sample, it rises to 77 cents on the dollar.

Unsurprisingly, researchers underestimated the diversity of Hispanics across the United States. Florida’s Latinx population is not representative of the rest of the nation. It is home to a majority older Cuban Hispanic population who historically have fared better financially in the U.S. compared to Mexican and younger Central American Hispanics. However, the three states feature Hispanic-white income ratios that are equal to the national ratios.

The study of bank records revealed that Black and Hispanic households have less liquid wealth than white households at every income level. This difference in liquidity means that Black and Hispanic families have less cushion to protect themselves when they face a financial shock.

Although the authors found that all households handle financial shocks similarly, they attribute differing financial outcomes to the historic racial wealth gap that leaves Black and Hispanic households more vulnerable to income variations than white households.

These findings suggest there may be a greater need for policy makers to enact additional automatic social welfare mechanisms during recessions or economic downturns. This would give households in need access to liquid assets to cushion the shock that comes with difficult economic times.

These automatic mechanisms or “stabilizers” could be in the form of removing work requirements for unemployment benefits when unemployment rates hit a certain percentage or allowing households to receive Temporary Assistance to Needy Families (TANF) benefits beyond the typical 5-year limit during harsh economic circumstances. In 2019, Brookings published work calling for changes to the Supplemental Nutrition Assistance Program (SNAP) that would increase the program’s effectiveness as an automatic stabilizer. The changes they proposed included removing work requirements during economic downturns and increasing the SNAP maximum benefit by 15% during recessions.

Although these stabilizers will not remove the systemic and historic discrimination faced by households of color or make up for the financial havoc COVID-19 has wreaked on low-income families, they will offer some protection for families moving forward.

It is not a coincidence that across the United States, Black and Hispanic households are more vulnerable to income fluctuations than their white counterparts. The racial and ethnic wealth gap is the product of historic differences in treatment and ongoing discrimination, and this gap will only continue to widen if policy makers do not account for its causes. It is imperative that policy makers consider these racial and ethnic differences when considering how to mitigate the financial inequalities that will be exacerbated by the pandemic.

When we emerge from the pandemic, the carnage that stems from financial instability will not have affected all Americans equally. Households of color will find themselves in a more vulnerable position than white households, with the gap growing every month the pandemic continues and houses decimate their liquid assets.

Following the inequality illustrated throughout the summer as well as new research highlighting systemic differences in financial outcomes and COVID-19’s disproportionate effect on Black and Hispanic households, there is a need for Congress to intervene. Without action from policy makers, many households will not recover financially from this pandemic.

Megan Rivera

Megan Rivera is a second year Masters candidate at the Batten School and graduated with honors from the University of Houston in 2019 with a B.S. in Political Science. In addition to serving as VPR's Director of Communications, she runs the BattenCorps Program and serves in the Batten Latinx Network. Prior to attending Batten, she worked for the Forward Majority Action PAC and the Texas House of Representatives.

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