After six month and counting of high unemployment, lost wages, and economic shutdowns as a result of the COVID-19 pandemic, Americans’ emergency savings are in dire straits. Many cities have reopened businesses (with certain precautions), but for many, the damage has already been done.
In September, Clever surveyed 1,500 Americans on their financial statuses and how the pandemic has impacted them. Although joblessness has slowed since March and lockdown restrictions have been partially lifted, the financial picture of most Americans still isn’t looking so bright.
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Emptied emergency savings
Americans’ emergency savings accounts even prior to the pandemic were severely lacking — only 41% of those surveyed in January said they could cover a $1,000 emergency with their savings. Considering experts suggest having three to six months of expenses in an emergency fund, most Americans were already drastically behind on their savings.
The survey found that 61% of Americans will run out of emergency savings by the end of 2020. This includes the 16% who said they’ve already run out of savings during the pandemic and the 21% who never even had emergency savings to begin with.
Unsurprisingly, many Americans say they now regret their pre-pandemic spending and saving habits. Forty percent regret not having enough savings prior to the pandemic, 32% not putting enough into retirement, and 22% not putting enough into investments. Twenty-two percent regret having an unstable source of income, and 19% regret living outside their means.
Further in debt
Without an emergency savings to fall back on, 62% of Americans lived paycheck-to-paycheck in September, an increase from 54% in April and 49% before the pandemic. For many, lost wages mean their paychecks aren’t enough to get by, and they’re taking on more debt as a result.
Although stimulus packages passed by Congress early on helped ease some financial pain, the money received is now long gone, with Americans having to turn to debt to survive.
At the start of 2020, the average American had more than $3,000 in consumer debt. The survey found that 25% of Americans have taken on even more debt as a result of the pandemic. Respondents reported racking up 2.3x more in credit card debt in September than April 2020. It's likely the average American has much more than $3,000 in debt now as a result of the pandemic.
Even after the pandemic subsides and its side effects lessen, Americans will be left with loads of debt and need to begin paying it off — affecting their buying power for years to come.
Missed mortgage and rent payments
Renters and homeowners alike have been struggling to pay for living expenses as a result of COVID-19. Nearly one-fourth of Americans have either missed or deferred a mortgage or rent payment during the pandemic. This includes one-in-five homeowners who have missed a mortgage payment and one-in-three renters who have missed a rent payment. Just 16% of these homeowners and 15% of these renters have actually paid back their missed payments.
Of the homeowners with deferred payments, 46% have missed 3 or more payments since March. Forty-six percent still owe $2,000 or more, including 18% who owe at least $5,000 in deferred mortgage payments.
Although deferred payments and forbearances as a result of the CARES Act may temporarily help Americans stay in their homes, at some point, we may see many more foreclosures or homeowners looking to sell quickly to avoid it and save their credit scores.
For investors, this may present an opportunity to find foreclosed homes at a discount, as banks try to offload their inventory.
Mental health struggles
The pandemic has not only taken its toll on Americans’ finances, it’s also drastically affected their mental health. An alarming 84% of Americans have had sleepless nights since the pandemic began, half specifically because of the COVID-19 pandemic and the current state of the world.
Forty-four percent have lost sleep over worries about their children and families, 40% over paying bills, and 37% over the possibility of losing income. Thirty-four percent worry about running out of savings, and 28% are concerned about maintaining relationships with friends and family.
Continued impacts of the pandemic
COVID-19 has not only affected Americans’ physical health — it’s greatly affected the nation’s financial and mental health as well. Long after the virus subsides and the country is back to business as usual, Americans will still be wrestling with piles of debt, unemployment, and increased stress.