The COVID-19 pandemic continues to change lives in several ways and likely how people now earn, spend, and save money. Saving rates, spending habits, and overall employment rates fluctuated over the past couple of years, possibly changing the way people manage their personal finances. In some cases, contributors like precautionary saving, government aid, and business closures have led to increased personal saving rates and decreased consumer spending.
Changes in Consumer Spending and Personal Saving
As the COVID-19 pandemic began closing businesses in 2020, tens of millions of Americans across the nation faced unemployment and were encouraged to stay home. This economic hardship influenced new saving and spending behaviors, and by 2021, Americans were spending more time shopping online and cooking at home versus in-store and eating out. Although overall spending decreased that year, nearly half of the consumers in the United States claim to spend more money on one shopping trip than before the pandemic. These rates fluctuated throughout 2022 but as of January 2023, consumer spending increased by 1.8%.
In 2020, millions of Americans relied on unemployment payments to pay their bills after the pandemic caused a wave of layoffs nationwide. In addition to unemployment pay, most Americans received three Economic Impact Payments from 2020 to 2021. Many recipients of unemployment benefitted from the Federal Pandemic Unemployment Compensation (FPUC) program, giving them additional cash aid on top of their regular unemployment benefits. That same year, financial uncertainty and government aid became the leading contributors to increased personal saving.
The personal saving rate in the US increased from 9.3% in February 2020 to 33.8% in April of that same year. Rates fluctuated for three years and most recently stood at 4.6% in February 2023 and are continuing to increase as we move further into the year. People tend to save more when they stop spending as much or are preparing for hard times ahead, such as inflation. Not only were individuals saving more money, but the way some managed their finances changed during the pandemic.
Changes in Investing
The pandemic may have affected the way people decided to save their money, resulting in an increase in investment accounts nationwide. More people began their personal investment journey in 2020 and among those new investors, most of them tended to be younger in age and earned lower incomes. When these new investors were asked the reason for opening the account, most of them said they were saving for retirement. The ability to invest a small amount of money and cheaper stock prices due to dips in the market are the other two main reasons new investors opened accounts.
How Financial Management Changed: Digital Banking
Financial institutions were among numerous businesses in the US affected by COVID-19, making it difficult for people to manage their finances in person. More than 3,500 traditional bank branches closed in 2020 due to the pandemic, and as a result, more Americans began using mobile banking applications. The ongoing decline in traditional banking branches coincides with the increasing use of mobile banking apps and digital banking (online-only financial institutions).
The use of digital banking is on the rise, and financial institutions don’t see this method of banking slowing down anytime soon. As of 2022, about 203 million people use digital banking services in the US, and it is forecasted to hit 217 million users by 2025. Digital banking primarily offers web services to users and can be more convenient for managing finances in real-time.
Business closures and job losses due to COVID-19 may have temporarily affected how people earn and spend money, but the changes in how to manage those finances may have made a lasting impression. Some of those changes people made during the pandemic have stuck around and the increasing US saving rates show this. Some of those people who are now saving more of their money may be using digital banks or investing.
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