Around three-quarters of lower-income American families (77%) expect their rainy day funds to run dry within the space of three months, as the economic reality of the coronavirus begins to take hold. According to a sobering report from the Pew Research Center examining the toll that the global pandemic is taking on household finances, the impact is falling more heavily on lower-income adults – a group that was feeling significant financial pressure well before the current crisis.
Indeed, over half (52%) of lower-income Americans now say that they or someone in their household has lost a job or taken a cut in pay due to the outbreak, compared with 43% of US adults overall. The study defines lower-income families as those earning a combined $37,500 or less, per year; higher-earning families are set at $112,600 or more.
For those who have suffered job loss or seen their paychecks diminished, cash reserves can be a temporary lifeline, particularly for those who have recently made a claim for unemployment benefit and are waiting for their first payments to be made.
Poorly prepared for financial shock
Of further concern, however, is that those who have been hardest hit by the COVID-19 fallout are also the least prepared to withstand such a financial shock. The report found that only around one-in-four (23%) lower-income Americans have sufficient rainy day funds set aside to cover their expenses for three months in the case of an emergency, such as job loss, sickness or an economic downturn.
Although the situation is less dire for those with higher incomes - 48% of middle-income and 75% of upper-income adults believe they have enough in reserve to see them through the next three months - these figures still suggest that millions of seemingly better off Americans will face significant financial challenges in the near future too.
Worryingly, the money problems of many Americans will become critical in an even shorter space of time, with over half (53%) of lower-income adults saying they will have trouble paying some of their bills this month. Help is likely to be available if you are wondering what to do if you can’t pay your mortgage.
Similarly, credit card issuers are helping Americans impacted by the coronavirus too. However, some households might still be considering payday loans online as a result, although if you have debt, better alternatives to getting a payday loan should always be looked at first.
The first coronavirus stimulus checks should already be providing some relief to hard pressed families, although the report suggests that much of this payment is being allocated by families to cover certain expenses even before it arrives.
Check whether you qualify for the coronavirus payment here.
More than half of adults who expect to receive a payment as part of the government’s coronavirus aid package say they will use a majority of the money to pay bills or for something essential for themselves or their family. About one-in-five (21%) say they will save a majority of the money in the best online banks, and 14% say they will use it to pay off debt. The remaining 10% say they’ll use it for something else.
If the stimulus payment or unemployment benefit is unlikely to make a lasting difference to the money worries facing American families, it is likely many will look to the best credit cards to bridge a financial gap until things begin to improve, or even the best personal loans.
Sadly, however, there will also likely be millions of households who eventually find themselves facing unmanageable debts, whom only the best debt consolidation companies will be able to help.