Losing Our Financial Health 5 Years After Covid

Despite the economic turmoil brought on by the COVID-19 pandemic, U.S. households made notable financial gains in 2020 and 2021.

According to the U.S. Government Accountability Office, credit card balances declined as many Americans used their stimulus payments to pay down debt. Late payment and default rates on credit cards dropped to historic lows, particularly among consumers with credit scores below 620. Meanwhile, emergency savings increased, and overall financial well-being, measured by the Consumer Financial Protection Bureau (CFPB), reached record levels. This highlighted an unexpected silver lining in an otherwise devastating global crisis.

There And Back Again

Nearly five years after the COVID-19 pandemic, the financial progress many U.S. households made during 2020 and 2021 has largely unraveled.

Credit card usage in the U.S. surpassed one trillion dollars for the first time last summer, reflecting a growing reliance on debt. Meanwhile, the CFPB’s 2024 Making Ends Meet survey shows a steady decline in financial well-being. The average financial well-being score among Americans has fallen each year since the pandemic, dropping from a peak of 55 in 2020 to just 49 in 2024.

Economic instability has left more Americans vulnerable. The CFPB reported that the percentage of people unable to cover lost income for more than a month rose across nearly all income and demographic groups, climbing to 42.4 percent in 2024 from 37.3 percent the year before. Notably, high-income and well-educated consumers saw the largest increases in financial strain, with 31.9 percent struggling to pay bills in 2024, up sharply from 22.5 percent the previous year.

A new Bankrate poll underscores the growing financial insecurity. Nearly 60 percent of U.S. adults say they are uncomfortable with their emergency savings, a significant increase from 37 percent before the pandemic. As of January 2024, more than one in three Americans now carry more credit card debt than they have in savings, and over a quarter have no emergency savings at all. Among generations, Millennials between the ages of 28 and 43 are the most likely to lack an emergency fund at 34 percent, followed by Generation X at 31 percent, Generation Z at 29 percent, and Baby Boomers at 16 percent.

Temporary Booster

During the pandemic, government stimulus checks and reduced spending helped many Americans shore up their finances. The Federal Reserve Bank of Boston found that many people used their stimulus payments to pay down credit card debt, causing default rates to fall to historic lows, particularly among those with low credit scores below 620. Consumers across all income levels also accumulated excess savings in their bank accounts relative to pre-pandemic levels. However, with the return of student loan and mortgage payments, credit behavior has largely returned to normal.

In general, five years after COVID, financial health has deteriorated due to higher inflation, soaring housing costs, and rising interest rates.

Over the past year, the CFPB asked Americans: “When you had difficulty, which of the following did you have difficulty paying for?” The top three responses highlight inflation and housing uncertainty as the primary financial stressors:

1. Utilities (57%)
2. Food (56%)
3. Mortgage or rent (54%)

These economic headwinds have pushed many Americans back into financial uncertainty, erasing the gains made just a few years ago.