Did the Stimulus Checks Improve Household Balance Sheets?

WP#2022-14

Abstract

Even before COVID-19 brought the economy to a halt, about 40 percent of U.S. households said they lived on such tight budgets that they could not easily smooth small financial shocks.  The question is how the pandemic affected the finances of these vulnerable households.  On one hand, the shutdown of the economy resulted in salary cuts and job losses that put pressure on many households, leaving them even less prepared for small expenditure shocks.  On the other hand, most households received Economic Impact Payments (EIP) totaling several thousand dollars; and those who lost their jobs got expanded Unemployment Insurance (UI) benefits that often more than replaced lost income, at least initially.  In addition to preventing economic hardship, the hope was that this financial assistance would improve household balance sheets, enabling them to better weather financial shocks and avoid falling short on longer-term goals such as retirement savings.

The paper found that:

  • Most households reported saving most of their second and third EIP checks, and the percentage that felt they were better able to manage unexpected expenses increased.
  • Data on household net wealth support these perceptions: balance sheets improved, with high-wealth households gaining an enormous amount from the run-up of housing and equity prices.
  • For middle-wealth households, EIP checks accounted for about fifteen percent of balance sheet gains and they saw increased home and stock ownership over the pandemic.
  • Low-wealth households were able to break even because the stimulus payments supported earnings losses when supplemental UI stopped and helped meet rising expenditures. 

 
The policy implications of the findings are:

  • These results stand in stark contrast to households’ experiences after the Great Recession and support the importance of fiscal support and a quick labor market recovery.
  • As more complete data become available, the precise impact of EIP and UI benefits will become clearer.

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