Covid Upended Americans’ Finances, Just Not in the Ways We Expected

When the pandemic crippled the economy in the spring,

Walmart Inc.

Nearly stop service where

Christina Rogers.

works as an optometrist. Their children’s schools are also closed. She thought maybe she should go save some money while they were at St. John’s. George, Utah.

Instead, their financial situation has improved.

Although her income fell when she reduced her child-care hours, she was able to earn some extra money thanks to company benefits and a government incentive cheque. This spring she bought back shares just before the market came back and refinanced her mortgage when interest rates fell.

The coronavirus crisis unfolded in a way that few people had expected. Bankers, consumer advocates and, yes, journalists have suggested that if the economy collapses in March, Americans’ finances will also collapse. Many people remembered that the last financial crisis made millions of people unemployed.

This crisis is not like the previous one. But in hindsight, it is clear how much the 2007-2009 recession affected the recovery of the coronavirus.

The government’s reaction then led to a slow recovery that lasted for years. The government’s response to a stronger and faster economic shock was this time seen within weeks, allowing more people to benefit from high unemployment benefits and one-off stimulus measures. In many cases the recipients made more money on benefits than in their regular jobs.

So far, on average, the Americans have performed pretty well. They paid off their credit card debts and saved more. The net worth of households reached a record high, supported by rising share prices. Your credit rating has increased.

Behind these encouraging statistics, however, lies an increasingly uneven economy. Millions of Americans are unemployed and in danger of losing their jobs forever. More and more people are hungry. Hundreds of thousands of small entrepreneurs have gone bankrupt. Legislation to extend much of the government’s aid is still awaiting President Trump’s signature.

The averages are certainly accurate, but there are many people who are even more vulnerable, says Ray Klunder, a Harvard Business School professor who studies household financial problems. They’re definitely going the wrong way.

The recent crisis – and the lessons learned from it – have paved the way for the response to this crisis.

When the financial markets went mad in March, the Federal Reserve took a series of monetary stimulus measures inspired by the early crisis – but at increasingly shorter intervals. These programmes supported the solvency of large companies and helped the stock market return to record levels.

The rescue and stimulus packages from the last crisis prompted Congress to act quickly when the pandemic peaked. The aid was then targeted at companies, namely banks and car manufacturers, which were about to collapse. Consumer support has mainly taken the form of reductions in social security contributions, an increase in unemployment and food stamps.

This time the legislators quickly gave money to almost all Americans and to the economy in general. The government has abolished cheques, extended unemployment benefits and extended loans to small businesses. The $2 trillion stimulus package approved in March helped support the economy when businesses and consumers could not.

The government has also offered homeowners generous mortgages of up to one year with deferred payments, as it has done for most home loans in recent years. This enabled him to lead the housing crisis of 2008.

Banks and other financial institutions are the villains of the recent crisis, accused of blowing up the property bubble. This time they wanted to look like the good guys. They have plans to help borrowers suspend payment of their debts and waive fees and other costs for a certain period of time.

They were in the best position to offer these benefits. The strict regulations adopted after the financial crisis forced them to limit their risks and build up solid capital reserves to be used in case of need.

Many consumers have also changed. Burned by the real estate bubble ten years ago, they now manage their money more prudently. The average credit rating rose steadily and continued to rise as the recession dragged on, so that

Honest Isaac Corp.

Around 2008, Mrs. Rogers, a Walmart employee, left a marriage that left her and her ex-husband in debt. She grew up in poverty and sometimes used the neighbor’s house for showers, she says. The economy was not the main goal. I’ve been in a financial crisis my whole life, she says.

After her divorce, she decided to pay off her credit card debt and invest her savings. In 2010 she had set aside enough money for a down payment on the house where she lives with her partner and children.

Years of financial restraint put them in a strong position in March. Walmart’s optical department where she worked was actually temporarily closed, but she was transferred to the pharmacy. When the shares were issued, she opened investment accounts for her children. In late spring, she refinanced her mortgage with a 20-year loan at an interest rate of just over 3%.

Financially, the crisis hasn’t affected me too much, except that I’ve benefited from everything, Mrs Rogers says.

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After the divorce, Mrs. Rogers’ priority was to pay off her credit card debts and build up savings.

Photo:

Bridget Bennett for the Wall Street Journal.

The bank’s management noticed a change in customers’ savings and cheque account data.

During the last recession, people used incentive vouchers and tax cuts to make large purchases, such as televisions and cars. But when the crisis came, much more had been measured.

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Those who increased their spending often spent more on everyday things such as groceries and home improvements. This has helped the Americans to spend less time. Restaurants and nightlife are closed. It wasn’t about the trip.

People have taken more responsibility to use the money for its intended purpose – let me reduce the risk, pay off the debt, he said.

Mary Mack,

managing

Wells Fargo

Konsumbank & Co.

He was one of the

Joe Ormiston’s house

First steps. He lost his job as a bartender when the sushi restaurant in Nashville, Tennessee, where he worked, closed in March and then permanently closed. Comprehensive unemployment benefits and a stimulus cheque have largely replaced his income.

After the government paid him the benefits, he stopped using his credit card and paid off the balance of $600. He said he didn’t want the debt to rest on him indefinitely.

Not having a job, not knowing what’s going on, at least that’s something I can control, he said.

The families who lost their jobs but received government benefits went pretty well in the early months of the recession, according to…

JPMorgan Chase.

& Co. Institutional analysis of bank account and credit card data. Bank balances initially increased, but the average household spent most of this money as the pandemic dragged on and unemployment benefits did not increase during the summer. The lower their income in 2019, the lower their balance.

After Mr Ormiston’s extended benefits expired, his weekly unemployment benefit dropped to about $250 a week. It stopped completely recently. He spent about a quarter of the $20,000 he had saved for a down payment on a house and started using his credit cards again. When he was in a difficult situation, he joined the marine reserve. The camp starts early next year.

Although consumer purchases have increased in recent months, local spending patterns have not yet returned to normal. For example: According to the brown university economist John Friedman, spending fell most in the richest neighbourhoods when workers retreated home.

Robert Brett Clothing, a men’s clothing store in Fox Point, Wisconsin, felt the change. Usually a steady stream of executives and financiers come from the Milwaukee area to purchase bespoke suits, trousers and sports jackets. Even during the financial crisis, people had to disguise themselves. But since March the calendar is almost empty.

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Bob Richards’ men’s clothing store was hit during the pandemic because customers worked from home.

Photo:

Bob Richards.

It’s a very different thing in terms of hardness and absoluteness, he said.

Bob Richards,

Trader and sole employee. Can you spend money on something that you don’t really need and that you’re definitely not going to use for a while?

Mr. Richards received a loan from the Wage Earner Protection Program and a government grant. But he had to close the store, so he continues direct sales. His family of five years has called on his savings and pension account. They maintained the mortgage and prolonged the purchases.

It’s not clear where the Americans’ finances are going. Recently, Congress passed, but President Trump has not yet signed another stimulus package that would give the unemployed an extra $300 a week. The $200,000 and the moratorium on evictions will be extended until the end of January. The programme for loans to small businesses is reopened. Mr. Trump declared that paying $600 was not enough and did not undertake to sign the invoice.

If unemployment remains high for longer than the stimulus measures, the fault lines in the economy could widen, according to Peter Ganong, Professor of Public Policy at the University of Chicago.

We could end up with an undiscovered bug, similar to the one in the Great Recession, Mr Ganong said.

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Mrs. Rogers, photographed in front of her house in St. George, Utah, said that the financial crisis has not affected me too much, except that it has allowed me to benefit from some things.

Photo:

Bridget Bennett for the Wall Street Journal.

Mail Ben Eisen at ben.eisen@wsj.com.

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