By David Silberman, Senior Advisor, Financial Health Network
The COVID-19 pandemic has caused widespread economic dislocation. Tens of millions of Americans have lost their jobs, at least temporarily, and millions more have seen their hours drastically cut. Those job and wage losses have fallen disproportionately on low-wage workers, especially blacks and Latinos, who are concentrated in the industries most affected by the economic shutdown. Now, new U.S. Financial Health Pulse research has found that those most in need of assistance were to a large extent left behind when the Treasury Department began distributing the stimulus payments this spring in an effort to stem the economic bleeding.
Generally known as “economic impact payments” or EIPs, these payments were part of the CARES Act that Congress enacted in late March. The Treasury Department began distributing the recovery rebates in mid-April. Initially, however, payments were sent only to those taxpayers who previously had arranged to have an IRS tax payment directly debited from, or a refund directly deposited into, their checking or savings account. That approach left behind the unbanked and those who are not required to file tax returns, as well as those who may not have arranged for direct debit or direct deposit. As a result, those most in need were last in line.
As part of its third annual U.S. Financial Health Pulse survey,*the Financial Health Network added a set of questions to understand how the COVID-19 crisis and the government’s response to it have affected Americans’ financial health. The survey was fielded to a nationally representative sample of over 6,500 adults from April 20 to May 8, with most responses obtained during the first week. One of the questions the survey asked was whether anyone in the respondent’s household had received a stimulus payment (which the survey explained could also be referred to as a “recovery rebate,” “economic impact payment,” or “stimulus check”). A little over half the respondents indicated that they already had received their payment at the time they took the survey.
When we look beneath that top-line statistic, a disturbing picture emerges of who had — and had not — received stimulus payments. Across the board, the people most in need of the stimulus were the last to receive it. For example, among households earning under $30,000, only 37% had received their recovery rebate, whereas for households earning between $30,000 and $150,000, the percentage was over 60% or almost 1.7 times higher (receipt rates were fairly consistent across all income sub-segments from $30,000 to $150,000). In fact, households earning more than $150,000 were slightly more likely than the lowest-income group to have received a stimulus payment, even though a sizable portion of these higher-income households were not eligible for a payment because of the income limitations Congress built into the program. Similarly, Black households were 20% less likely to have received their money than whites households, despite being more likely to qualify, given income disparities.
The survey results also indicate just how important the recovery rebates are to those lower-income households who have been fortunate enough to receive their payments. More than two-thirds of respondents earning under $30,000 who had received recovery rebates reported that they used the money, at least in part, to pay for basic necessities such as food or medicine, and a similar percentage said that they used the money to pay bills like rent or utilities. (Respondents were asked to indicate all of the ways they used the money). In contrast, just over a quarter of those with incomes above $150,000 used the money for basic necessities and a similarly small percentage used the money to cover bills. Not surprisingly, fully 85% of lower-income respondents who had received recovery rebates said the rebates were valuable (with 58% labeling the payments very valuable); among those earning above $150,000, less than 40% viewed the rebates as valuable (with only 15% viewing them as very valuable). Indeed, while more than a third of those earning above $150,000 viewed the payments as not very valuable, only 4% of the lower-income group shared that view.
Of course, it will always be true that cash benefits will be more valuable to lower-income individuals than to upper-income households. And even before the current crisis, people in the lowest income bracket were in a financially precarious situation. For example, one in five households earning under $30,000 reported they had no more than one week of expenses in liquid savings and 25% of households reported they could not cover a $400 emergency expense, either out of savings or by borrowing (compared with just 12% nationally ). Almost 40% of these respondents reported that, during the prior year, they sometimes or often worried that their food would run out before they received more income. The current economic crisis only magnifies the chasm that already existed in the income distribution curve.
Fortunately, the Treasury Department has prioritized sending paper checks to those with less than $30,000 in adjusted gross income. By now, most of the people who are eligible for payments have hopefully received their money — although the requirement to have a Social Security number to be eligible means that many needy individuals will have been left out. But the fact that, despite an admirable effort, the government was unable to deliver relief swiftly to those most in need is a stunning indictment of our banking and payments system and a clarion call to action.
*Stay tuned for more data and analysis on the 2020 US Financial Health Pulse study and the impact of COVID-19 in the weeks ahead.