For the past year, inflation has strained families’ budgets for basic needs, such as housing, gas, and food (PDF). All families have felt the effects, but because of structural inequities, the costs of inflation have disproportionately hurt families of color.
This trend threatens to exacerbate existing inequities and undermine families’ financial resilience. Recent data illuminate the risk of ignoring racial equity in inflation policy solutions.
Luckily, federal policymakers have short- and long-term options to mitigate families’ economic stress and prevent racial and ethnic disparities from widening.
Food insecurity and debt in collections spotlight families’ struggles to meet financial needs
Two primary indicators of financial distress underscore the effects of inflation on families of color: food insecurity and debt in collections.
When experiencing financial uncertainty, families must make trade-offs between food and other expenses, sometimes leaving them with insufficient financial resources to afford food to live an active, healthy life. Having debt in collections—or when families struggle to repay debts hurts credit health, which can constrain families’ access to low-cost credit in emergencies and employment opportunities. Together, these indicators help us understand disparities in financial resilience (PDF), or whether families have the economic, social, and institutional resources to buffer against a shock and remain financially secure.
Higher food prices, alongside diminishing safety net supports, have left families with little assistance to help buffer against economic shocks. Though food insecurity increased among all households between 2021 and 2022, rates are disproportionately higher among households of Black and Hispanic/Latinx adults. These gaps predate the pandemic and reflect a history of structural disinvestment and exclusion of communities of color from key wealth-building opportunities. They also mean that today, roughly 3 in 10 Black and Hispanic/Latinx adults can’t meet their household food needs (see black bars in the figure below), and may experience negative long-term health effects.
To meet their financial and food needs, families often turn to credit, loans, borrowing from friends and family, selling assets, or using high-cost loans—especially if they have limited or fixed incomes.
Before the current inflationary shock, credit health was improving across communities, although racial gaps in credit health stemming from historical inequities in families’ wealth-creation opportunities persisted. In communities with a majority of Black and majority of Native American residents, the share of residents with debt in collections remained more than twice as high in August 2021 than for residents living in majority-white communities.
If inflation continues pushing the cost of living outside of families’ earnings, they may need to borrow money, which is increasingly more expensive as interest rates rise in response to inflation; sell assets; or make hard choices between essential expenses—all of which can deepen material hardship, make families less equipped to weather a future economic shock and widen the racial wealth gap.
How can policymakers help families of color cope with rising prices and build financial resilience?
Supports that buffer against price increases can help families cope with rising prices, but recently, fewer benefits have been available because the Supplemental Nutrition Assistance Program (SNAP), emergency allotments, Universal School Meals Program, and the advanced child tax credit have lapsed in many states. Families explained to me and my colleagues how challenging it’s been to make ends meet as costs rise.
“We’re struggling more this year because of the rise of cost of everything, more so than when the pandemic hit. The prices of gas and food is ridiculous.”
“We’re definitely cutting back on a lot. We were, at the beginning it was, um, it was a little hard. Then things got easier, and now, with everything being so, so, so expensive, now we’re having to try a little harder.”
—Mothers in Texas participating in a US Department of Agriculture meals program, summer 2022
Without sustained support and intentional policies that address racial barriers, inflation’s economic effects could leave families with fewer resources to buffer against future economic shocks. As concerns over a future recession increase, inflation could place a larger wedge between families of color and white families’ financial resilience.
In the short term, strengthening public benefits that families turn to during tough economic times, like SNAP and unemployment insurance, can help families meet their financial needs when implemented alongside inflation-targeting policies.
Adjusting SNAP benefits for inflation twice a year in periods of high inflation and continuing emergency allotments until inflation abates could be a powerful strategy to provide timely support to families. We know these policies can help families become more resilient; the increase in SNAP benefits from the reevaluated Thrifty Food Plan kept nearly 2.3 million people out of poverty and reduced poverty most for Black and Latinx families.
In the long term, bold federal policies can address root causes and help families of color build financial resilience to meet future economic shocks without severe levels of hardship. Expanding access to asset-building programs like baby bonds and individual development accounts, enacting regulations to improve job quality, streamlining and connecting public benefits, and addressing chronic disinvestment in communities can support financial resilience for families of color.
Because of structural barriers, communities of color are most likely to experience food insecurity and have debt in collections—limiting their financial resiliency in the face of inflation. Without sustained assistance and intentional policies that address racial barriers, the effects of inflation could create major setbacks on the pathway to an inclusive recovery and leave families of color even more vulnerable to future economic shocks.
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The Urban Institute podcast, Evidence in Action, inspires changemakers to lead with evidence and act with equity. Co-hosted by Urban President Sarah Rosen Wartell and Executive Vice President Kimberlyn Leary, every episode features in-depth discussions with experts and leaders on topics ranging from how to advance equity, to designing innovative solutions that achieve community impact, to what it means to practice evidence-based leadership.