Did the Stimulus Checks Help People with Unexpected Expenses?

Before the COVID-19 pandemic, despite a booming economy, about 40 percent of households said they would have trouble paying a $400 unexpected expense. When households are operating under such tight budgets, saving for long-term goals such as retirement can be challenging. The question is, how have household balance sheets been affected by the pandemic? Clearly those with substantial assets benefited from a roaring stock market. But those without meaningful assets experienced two opposing forces. On one hand, the recession resulted in job losses that put pressure on many household balance sheets, leaving them even less prepared for small expenditure shocks. On the other hand, most households received stimulus checks totaling several thousand dollars. For workers who lost their jobs, this money may have helped them make ends meet. But for those fortunate enough to have kept their jobs, the stimulus checks could have provided some much-needed precautionary savings. The discussion proceeds as follows. The first section discusses what surveys tell us about why households report that they cannot cover a $400 expenditure and the role of credit card debt in their assessments. The second section discusses the stimulus checks – Economic Impact Payments – and provides an early indication of how they affected household balance sheets. The third section concludes that the first payment allowed those who kept their jobs to build precautionary savings and pay down debt, while the second and third payments provided most households, even those with workers who lost their jobs, with a much-needed financial buffer.