Lower-income and middle-class households saw their net worth increase at a faster rate than their higher-income peers early in the Covid-19 pandemic, according to a Pew Research Center report released Monday.
The median wealth of lower-income households shot up 101% between December 2019 and December 2021, while the middle class enjoyed a 29% increase. Upper-income households saw their net worth rise by 15%.
But the wealth chasm remains vast. High earners had a median net worth of $803,400 in December 2021, while the middle class and lower-income households had nest eggs of $204,100 and $24,500, respectively, Pew found.
Despite the economic upheaval early in the pandemic, which led median income to drop and long-term unemployment to rise, Americans broadly saw their wealth increase.
Several factors could have contributed to the growth. Congress passed several relief packages that funneled money to people, particularly lower-income and middle-class households. The measures included three rounds of stimulus checks worth a total of $3,200, a historic expansion of unemployment benefits, more generous food stamps, an enhanced child tax credit and housing aid for renters and homeowners.
Also, home prices soared 31% between December 2019 and December 2021, increasing homeowners’ equity. Mortgage rates fell to historic lows, which gave homeowners an opportunity to shrink their monthly payments. At the same time, stock prices soared after tumbling initially when the pandemic hit.
Despite these gains, poorer households were likely to be in debt both before the pandemic and at the end of 2021. Half of these households had a net worth of $500 or less in December 2021, compared to a net worth of $0 two years earlier.
“What we see in the pandemic is both broad and deep financial gains for all households,” said Rakesh Kochhar, senior researcher at Pew. “But the gains were not so deep that it was able to lift the poorest of the poor in the country out of debt.”
The typical poorer Black household had a negative net worth of $4,000 at the end of 2021, meaning they owed $4,000 more than they had in assets. That’s an improvement from their median negative net worth of $10,000 two years earlier.
Poorer Hispanic households had a median net worth of $0, compared to a negative net worth of $1,100 at the end of 2019.
Poorer White and Asian households had net worths of $4,700 and $8,900, respectively, in December 2021, up from $800 and $2,900, respectively.
The financial improvements enjoyed by lower-income and middle-class Americans, however, may not continue. The trends that supported wealth building between 2019 and 2021 have either reversed or moderated, Pew said. Incomes fell between 2021 and 2022, and household spending jumped 9% – enabled in part by the drawing down of savings built up earlier in the pandemic.
Also, the growth in home values slowed and stock prices tumbled in 2022, though they have recovered most of those losses this year.
Other government reports show that lower-income Americans lost ground in 2022. The share of Americans, particularly children, in poverty rose significantly last year, after tumbling in 2021, according to the US Census Bureau.
Read the full article here
