Inflation Pushes More Americans to Dip Into Savings
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Here's your money briefing for Wednesday, July 6th. I'm J.R. Whelan for The Wall Street Journal. American savings swelled to record levels during the first two years of the pandemic, as people socked away trillions of dollars in unspent cash. But then along came the highest inflation in decades. And for a lot of people, that's changed the math around savings.
they're starting to kind of dig into that extra money. And the government assistance that helped contribute to this big pile of savings, you know, those are not coming anymore. So that is contributing to this.
On today's show, we'll talk with WSJ reporter Rachel Louise Ensign about how people's savings are holding up and how some people are managing their finances to avoid having to dip into savings. That's after the break.
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How did Americans build record pandemic savings and what changed with inflation?
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Inflation is at levels not seen in four decades, and that's causing Americans to start using up the savings they built over the first two years of the pandemic. So with inflation showing no signs of coming down significantly anytime soon, what does that mean for Americans' finances? WSJ reporter Rachel Louise Ensign has been looking at the numbers, and she joins us to discuss. Hey, Rachel, thanks for being with us.
Thanks for having me.
So, you know, Rachel, Americans' personal savings rate rose to record levels at the start of the pandemic, thanks to government assistance and people staying home for several months. How's that cushion holding up?
So the savings rate was at 5.4% in May. That's below the average of the past decade, though, and it is far below the pandemic era record. So, you know, folks are still saving, but it's really nowhere near the levels that it reached during the pandemic. And so there is this cushion of money that folks socked away during the first two years of the pandemic. And people are starting to tap into that. They've tapped into, one economist estimates, about $114 billion of their pandemic savings so far. That pile of savings is about $2.7, $2.6 trillion. So there's still a lot left, but they're starting to kind of dig into that extra money. And the government assistance that helped contribute to this big pile of savings, you know, the child tax credit, monthly payments that were coming in for a lot of families, the stimulus checks that hit people's bank accounts three times, those are not coming anymore.
So that is contributing to this.
Has this affected people across all income groups?
You know, what Moody's Analytics found is it is affecting most income groups, but not folks at the very bottom, which is pretty interesting. So the bottom 20% of earners have actually fared better than everyone earning more. I mean, you have to put this into the context of the fact that the highest group of earners, the wealthiest people, they saved far far more than other groups during the first few years of the pandemic, just because They generally kept their jobs and didn't have the vacations and extra things to spend money on.
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