Urban Wire What Amount of Cash Can Help Buffer Families against COVID-19’s Economic Impacts?
Caleb Quakenbush, Signe-Mary McKernan
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To help families cope with the economic fallout of the coronavirus pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides most families up to $1,200 per adult and $500 per child in relief payments—up to $3,400 for a two-parent, two-child family. What does evidence say about how far this money will go?

This pandemic is like nothing our economy has seen in recent times, but Urban Institute research on how families experiencing large income disruptions fared from 2009 to 2012 suggests that for many in the near term, these amounts are a promising start.

This research can also inform efforts to strengthen the country’s financial safety net in the wake of the crisis.

What savings amounts are associated with reduced hardship?

Families with as little as $250 to $749 in nonretirement (liquid) savings are 28 percent less likely to miss a housing payment than those with between $1 and $249. And more savings are associated with even less hardship. Only about 11 percent of families with savings between $2,000 and $4,999—in the range of relief payments for many families—miss housing payments, and the percentage falls further at higher savings thresholds. Fewer missed housing and utility payments can help avoid serious hardships, such as eviction and utility shutoffs.

This research examined disruptions such as a 50 percent income drop, job loss, and health-related work limitations, the kinds of shocks that the current crisis is bringing to many.

Chart: hardships decline with increased liquid savings

Similarly, researchers at the JPMorgan Chase Institute examined bank account data and found a cushion of about six weeks of take-home pay—about $5,000 for a middle-income family—helps buffer families against rare but especially costly income and expense shocks. But many middle-income families were between $2,000 and $3,000 short of the necessary savings cushion.

Relief payments matter because half of US families lack even a $2,000 savings cushion. Quickly delivering emergency funds sufficient to avoid hardship will help stabilize families in the near term. So, although needs for US families vary, $3,400 for a family of four is likely to make a meaningful difference.

This financial support is especially vital for families with low or moderate incomes—those likely with jobs at higher risk of furloughs and layoffs—and for people of color, who, because of long-standing structural barriers to wealth building, have fewer assets to fall back on than white families.

How might family relief provide city relief?

Hardships like eviction, missed housing and utility payments, and public benefits use not only affect families but also strain city budgets. During a recession, these burdens might be especially challenging for cities already facing sharp revenue declines because of other reduced economic activity.

Some jurisdictions have placed moratoria on evictions and utility shutoffs, which can help cities focus resources on emergency response and recovery and provide families breathing room to cope with financial shocks. But once those protections expire, families will need resources to stay or get current on bills.

Will the CARES Act be enough?

Relief payments are not a replacement for other, more targeted support for those deeply affected by the crisis. Other supports, such as housing assistance, paid leave, and unemployment benefits, are already part of the federal government’s response from the CARES Act and other legislation responding to the pandemic, and more can be done.

It could take several weeks before relief payments actually reach families. People might need to borrow, miss payments, or seek other assistance in the meantime to meet financial obligations before stimulus checks arrive. Many renters who struggled before the crisis are especially exposed to COVID-19’s financial impact.

And unfortunately, many of the most economically vulnerable Americans are most at risk of getting relief payments late, if at all, because they are unbanked or make too little to file the tax forms used to verify eligibility for payments.

How can policy better prepare families for future economic crises?

This pandemic will require action beyond the CARES Act to protect families and businesses in the short term, but it’s not too early to start thinking about recovery and planning for future resilience. Research points to ways policymakers and other changemakers can strengthen Americans’ resilience to financial shocks, like those caused by the COVID-19 outbreak.

  • Help families build meaningful emergency savings cushions. Having sufficient savings on hand can help families absorb the initial shocks of economic downturns while policymakers craft additional supports, which can take weeks or even months to debate, enact, and implement. Evidence from a federal matched savings program found that participants experienced 34 percent fewer hardships than a control group. Federal, state, or local policymakers could explore ways to scale such programs. Employers could also provide matched savings programs as a workplace benefit through payroll deductions.
  • Raise or eliminate asset limits that discourage savings. Asset limits have unintended consequences. Evidence shows that relaxing them leads to increased household savings (8 percent more likely to have at least $500) and participation in mainstream financial markets (5 percent more likely to have a bank account), and it also reduces churn in Supplemental Nutrition Assistance Program participation (26 percent).
  • Enhance the country’s automatic stabilizers with automatically triggered payments when real-time economic data show problems. These could include automatically increased payments for earned income tax credit recipients, other targeted tax credits, and enhanced unemployment benefits. Automatic responses help reduce the time it takes for assistance to reach households. Policymakers should consider what amounts and policy designs are best able to quickly reach those who need them most.
  • Enact or expand policies, programs, and products that buffer families from financial shocks and support financial resilience. This will not be the last pandemic or the last economic crisis, but it can be the last one for which America lacks adequate public protections and financial infrastructure to support swift and inclusive recovery. To accomplish this, policymakers at all government levels, as well as philanthropy, business, and the nonprofit sector, will need to work together to implement solutions that ensure adequate incomes, protect against short- and longer-term volatility, and connect families to products and services that support their well-being.

Crafting the right response to support inclusive recovery and preparations for future crises will take time, careful consideration, and debates over costs, trade-offs, and incentives created by proposed solutions. But as policymakers continue to craft solutions to address the current situation, they could build on the already strong evidence about how to meaningfully help families in the short term and how to take the next steps forward.


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Research Areas Wealth and financial well-being
Tags COVID-19
Policy Centers Center on Labor, Human Services, and Population
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