Close Close
ThinkAdvisor

Portfolio > Economy & Markets > Economic Trends

A Look at Americans‘ Financial Health Across 3 Income Groups

By Michael S. Fischer

X
Your article was successfully shared with the contacts you provided.

What You Need to Know

  • Americans’ sense of their current financial health has fallen to early pandemic lows across income groups.
  • Since August, more respondents have been unable to pay some or all of their bills in the past month.
  • Most say wages have not kept up with inflation, with lower earners falling furthest behind in non-performance-based increases.

The gap between lower and higher earners continues to widen against new affordability pressures, according to research released Monday by Capital One Insights Center.

“Americans believe their financial health has declined to levels not seen since early in the pandemic,” Melissa Bearden, head of consumer intelligence at Capital One, said in a statement. “For those earning the least, the last two years of uncertainty and rapid change are creating worrisome financial realities.” 

The findings are part of the center’s ongoing Marketplace Index survey on the social and economic effects of COVID-19 to date. Since April 2020, the center has conducted studies every four to eight weeks with between 2,000 and 10,000 U.S. respondents covering topics such as job loss, how they used their government stimulus, and their outlook on economic recovery. 

The study divides Americans into three income groups: lower earners making less than $25,000 in household income annually; middle earners making $25,000 to $100,000; and higher earners making $100,000 or more.

The new report trends data first collected in April 2020 to data collected as recently as February, resulting in a two-year retrospective look at the pandemic’s enduring economic effects across lower, middle and higher earners. 

Widening Gap

Two years into the pandemic, the K-shaped recovery continues, with the gap between lower and higher earners continuing to widen against the backdrop of inflation, according to the analysis. 

Since the Marketplace Index’s first data release six months ago, Americans have confronted the omicron variant surge, expiration of key government relief programs and stimulus, and now rising inflation, which have increased pressure on the financial health of millions of Americans, with lower earners facing disproportionately negative effects. 

A comparison of the early months of the pandemic with February 2022 shows that underemployment — working less than preferred or for less money than before the pandemic — has markedly improved. But lower earners have not recovered at the same rate as their higher-earning counterparts. 

For middle earners, rates of underemployment dropped from 21% in April 2020 to 7% in February; for higher earners from 13% to 3%; and for lower earners from 22% to 18%. 

Thirty-three percent of middle and higher earners have reported a decrease in income since April 2020, compared with 35% for lower earners. 

Since last August, there has been a slight increase in Americans who were unable to pay some or all of their bills in the past month across all income groups, with lower earners struggling the most.

Americans’ sense of their current financial health has fallen to early pandemic lows across income groups, driven largely by falling sentiment among lower earners. Forty-two percent of lower earners reported that they did not feel financially healthy in April 2020, versus 47% in February.

The Inflation Bugbear

Lower earners continue to face outsize economic hurdles that affect their financial, physical, mental and emotional health at roughly two times the rate of higher earners, Capital One found. 

Against the backdrop of rising prices, 26% of Americans in February said they were unable to pay at least one bill in the past month, while 27% borrowed in some way to pay bills or make ends meet. Nearly half expressed concern about paying at least one bill in the next month. 

As concerns over inflation increase, 62% of respondents said inflation has affected their spending recently, with lower and middle earners most affected. As a result, more than one-third of lower earners are significantly cutting expenditures for travel, entertainment and dining, compared with rates in the 9% to 17% range among higher earners.   

Most Americans do not think wages have kept up with inflation, with lower earners falling furthest behind in non-performance-based increases, according to the report. Only 18% of consumers and 9% of lower earners said their wages have fully kept up with their cost of living. 

Just 10% of lower earners received a non-performance-based raise or bonus in the past three months, vs. 20% of middle earners and 30% of higher earners. Capital One said these disparate effects are even more pronounced when one considers the already stark difference in wages across all three income groups. 

The Period Ahead

To compensate for rising prices, 45% of consumers said they have taken proactive measures to spend less, such as cutting back on discretionary spending and not taking trips. Fifty-eight percent said they had taken a hit to their longer-term financial health by saving less, tapping into savings, borrowing money or taking out a loan. 

Forty-seven percent of respondents expect a refund after filing their 2021 tax returns. Forty-three percent of lower earners and 30% of middle earners said their tax refunds would be very or moderately important to their overall financial health this year. 

Employed Americans across the earnings spectrum report increasing income, according to the report. In February, more workers reported that their income had increased than reported a decrease in income, largely because of year-end bonuses, merit-based raises from their same job or working more hours. 

Thirty-one percent of middle and 45% of higher earners expressed more optimism about their financial futures than they felt before the pandemic; and 77% of higher earners and 48% of middle earners reported feeling confident about saving for their long-term goals. 

Only 27% of lower earners expressed a similarly positive view.

Michael S. Fischer

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.