Low-income Americans burned through extra cash

MOST Americans are still adding to their cushion of pandemic cash savings. But for the lowest earners, it’s all gone, and then some.

Among the bottom one-fifth of the income distribution, holdings of cash - currency plus checkable deposits - were down by 22 per cent in March from their levels at the end of 2019, according to the latest data published by the Federal Reserve.

Economists have pointed to the savings that households built up in the Covid years - thanks to federal aid, pandemic-induced spending constraints and asset-price gains - as a source of support for the economy, with high inflation and interest-rate increases by the Federal Reserve threatening the US recovery.

The Fed data suggest that is true in the aggregate, with an overall increase in checkable deposits and currency of US$3.26 trillion since the end of 2019. But roughly two-thirds of the increase went to the highest-earning 10 per cent of households, and one-third to the top 1 per cent. For the 26 million households at the bottom, the gains in cash holdings have already been wiped out. 

The most recent data on consumer finances suggests that a growing number of Americans are having to dip into their savings to meet the soaring cost of living. In April, the personal savings rate as a share of disposable income fell to the lowest since September 2008, the Bureau of Economic Analysis said on Friday. Americans are also stepping up borrowing on their credit cards, even as interest rates climb. BLOOMBERG