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80% of Americans See Savings Decline Since Pandemic Peak

personal finance, savings

Most Americans are reportedly facing financial challenges as their pandemic savings have dwindled.

Beyond the wealthiest 20% of the U.S., Americans have depleted their extra savings and now have less cash on hand than they did when the pandemic began, Bloomberg reported Monday (Sept. 25), citing figures from the Federal Reserve. 

But 80% of households by income have seen a decline in their bank deposits and liquid assets since the peak of the pandemic in 2021, after adjusting for inflation, according to the report. In contrast, the wealthiest one-fifth of households maintain cash savings about 8% above pre-pandemic levels.

The dwindling savings among the majority of Americans indicate a reduction in the financial resources available to them, the report said. Despite their resilience, which has contributed to the rapid growth of the economy this year and prevented an anticipated recession, some analysts warn that a downturn may still be on the horizon as households run low on spare cash. 

The report also highlights a unique trajectory of household finances following the COVID-19 slump, in comparison to previous recessions. The combination of significant government financial support and enforced savings due to lockdown conditions enabled Americans to accumulate extra cash reserves, the report said. This surplus of savings, coupled with increased spending power, fueled a rapid recovery. However, it appears that this recovery may now be losing momentum as savings diminish. 

The increase in household net worth by approximately $5.5 trillion in the April-June period, reaching a record high, was largely driven by gains in housing and stocks, per the report. However, these forms of wealth are more prevalent among wealthier households. The ownership of stocks, in particular, is skewed towards richer households.

The savings American consumers accumulated during the pandemic — which at one point topped $2 trillion — are expected to run out this quarter, the Federal Reserve Bank of San Francisco said in a study released in August.

“Our updated estimates suggest that households held less than $190 billion of aggregate excess savings by June,” Hamza Abdelrahman and Luiz Oliveira, researchers for the bank, wrote in a blog post. “There is considerable uncertainty in the outlook, but we estimate that these excess savings are likely to be depleted during the third quarter of 2023.”