The Financial Health Network today unveiled the Financial Health Pulse: 2021 U.S. Trends Report. The report, now in its fourth year, provides competing narratives of financial health in America as the pandemic “recovery” sits at an inflection point.
The Nation’s Financial Health is Slowly Improving
Overall financial health improved over the last year, with 34 per cent of people in America now considered financially healthy, a two percentage-point increase from 2020 and the highest level over the report’s four-year existence. Government relief programs and changes in consumer spending were particularly effective at both reaching vulnerable populations and at reducing their hardship, yet a full two-thirds of Americans, or 187 million people, are still not financially healthy — whether considered Financially Coping (52 per cent) or Financially Vulnerable (14 per cent). Clear racial inequities remain, as 39 per cent of White individuals are considered Financially Healthy, while only 21 per cent of Black and 24 per cent of Latinx individuals are.
“The overall improvement in financial health shows that government interventions can have a powerful impact on the most vulnerable, including marginalized communities, but these gains are at risk as relief programs wind down,” said Jennifer Tescher, president and CEO of Financial Health Network. “It is critical that we use these insights to inform ongoing, sustained financial health policies, programs, and products that bolster these gains and better support those that are coping, including women, people with disabilities and LGBTQ+ individuals, along with Black, Latinx and low-income people.”
Historically underserved populations including Black, Latinx, Asian Americans, and low-income households realized significant gains. The proportion of people considered Financially Healthy increased by 11 percentage points for Asian Americans (from 35 per cent to 46 per cent), nearly 10 percentage points for Black individuals (from 11 per cent to 21 per cent), about three percentage points for Latinx individuals (from 21 per cent to 24 per cent), and two percentage points for those with incomes under $30,000 (from 10 per cent to 12 per cent). These gains contributed to the overall number of financially vulnerable individuals decreasing by one percentage point from 2020 (to 14 per cent).
Government Relief Proved to Be Effective
Key findings from the report show government relief reached those who needed it and benefited their financial health. Financially Vulnerable individuals were three times more likely to receive government relief than the Financially Healthy. People with insufficient emergency savings were twice as likely to receive relief as those with sufficient emergency savings. Recipients of mortgage or rent relief were 50 per cent less likely to experience increased housing insecurity in 2021 relative to 2020 (when compared with people who applied for this relief but did not receive it).
Black people who received stimulus payments were 22 per cent less likely to become Financially Vulnerable (compared with Black people who did not receive stimulus payments). Latinx people who received stimulus payments were 21 per cent less likely to become Financially Vulnerable (compared with Latinx people who did not receive stimulus payments). Low-income people who received unemployment benefits were 62 per cent less likely to become Financially Vulnerable (compared with those who applied and did not receive these benefits). Additionally, 34 per cent of individuals who received a stimulus payment reported using it to pay off their credit card debt.
“This report from the Financial Health Network offers insightful and actionable information that can help drive cross-sector collaboration to improve the financial health of all Americans,” said Brandee McHale, head of Citi Community Investing and Development and president of the Citi Foundation. “As we continue to support our communities in their economic recoveries, it is critical that we work together to develop impactful solutions that are informed by data and strengthen our collective efforts to help close the racial wealth gap in America.”
As most relief programs subside and the pandemic continues to evolve, the agency fears the gains of the past year may swiftly disappear. Despite overall improvements in aggregate financial health, individual financial health decreased for 43 per cent of people living in America between 2020 and 2021, and 10 per cent of people moved to a lower tier of financial health. People with disabilities, low to moderate incomes, or less than a bachelor’s degree were more likely to experience a decline in financial health. The pandemic’s continued impact on physical health and employment will hinder progress. People who took time off work to tend to a serious illness in the past year were 25 per cent more likely to have a decline in their financial health (compared with those who did not experience this disruption).
Individuals who worked less due to lower demand or reduced hours were 10 per cent more likely to have a decline in their financial health (compared to those whose working hours were unchanged). The increases to the Child Tax Credit in 2021 will not supplant these relief programs, the report’s authors believe. For example, 73 per cent of people who received unemployment insurance in the past year do not have children under 17, and will thus be ineligible for the Child Tax Credit.
Uneven progress, especially for women
The growth in the proportion of people considered Financially Healthy was driven by positive trends across many financial health indicators, with the largest improvements occurring in people’s ability to pay bills (spend), amount of short-term savings (save), and credit score (borrow). The proportion of people who said they had enough savings to cover at least three months of living expenses grew from 56 per cent to 61 per cent in the past year.
The reality of the pandemic played a large role in how respondents were able to navigate their financial lives. Parents were strongly impacted by school closures and the transition to virtual learning, particularly women. In fact, women were more than twice as likely as men to not work due to child care responsibilities in 2021. The proportion of women who reported not working for this reason has increased by 61 per cent since 2020. Controlling for income, people who were unable to get to work due to childcare responsibilities (73 per cent of whom were women) were 65 per cent more likely to experience financial stress due to the pandemic.
Unsurprisingly, women did not see the same financial health gains in 2021 as did men. The proportion of men considered Financially Healthy increased from 39 per cent to 43 per cent, while the proportion of women considered Financially Healthy remained constant at just 26 per cent.
“While we all look forward to the end of the COVID-19 pandemic, we are barreling forward with two-thirds of the population still financially unhealthy and with significant and persistent financial health disparities across specific demographic and socioeconomic lines.” said Jo Christine Miles, director of Principal Foundation. “In particular, women continued to fall behind because of long-standing social and environmental factors that were exacerbated by the pandemic. It’s critical that policies and solutions target support for women in order to ensure long-term economic security and a financially healthy future for all.”
New Pulse Data Insights: Disability, LGBTQ+ and Geography
Analysis of new financial health measurement data, including self-identifying categories and geographic data show people with disabilities are nearly half as likely to be Financially Healthy, compared with individuals without disabilities. Among people with disabilities, 21 per cent are Financially Healthy, while 38 per cent of people without disabilities are Financially Healthy. People with disabilities are also approximately 2.5 times more likely to be Financially Vulnerable than people without disabilities.
LGBTQ+ individuals are less likely to be Financially Healthy (24 per cent) than non-LGBTQ+ individuals (35 per cent) and more likely to be Financially Vulnerable (20 per cent compared to 13 per cent).
People living in the Northeast and Midwest geographic regions are more likely to be Financially Healthy (37 per cent each) compared to people living elsewhere in the U.S. While the South made the largest financial health gains over the past year, it still has the lowest financial health levels in the entire country at 31 per cent.