The following post is the first in a two-part series about which families are most vulnerable to an income shock like COVID-19.
In late March, Congress authorized more than $2 trillion in relief for U.S. households and others affected by the COVID-19 pandemic. While the cash infusion helped millions of individuals, people with limited savings or wealth were more likely to suffer anyway, according to an In the Balance article.
Lowell Ricketts, lead analyst for the St Louis Fed’s Center for Household Financial Stability, and Ray Boshara, the Center’s senior adviser and director, focused on reports of serious delinquency to pinpoint the families most (and least) at risk. (Serious delinquency refers to being at least two months behind on a loan obligation.)
The figure below examines which families are more likely than others to experience serious delinquency on a loan obligation, holding all other factors constant. Ricketts and Boshara found the most important predictor of serious delinquency is whether a family has at least two months’ worth of income in the form of liquid assets, such as cash and checking and savings accounts. If they don’t, they’re about 300% more likely to become seriously delinquent than those who have at least that much.
SOURCES: Federal Reserve Board’s Survey of Consumer Finances and Center for Household Financial Stability calculations.
NOTES: The bar chart shows the percent change in the likelihood of serious delinquency. Each bar compares two groups. For example, in the sixth bar from top, we see that, on average, Black families were 28.5% more likely to be seriously delinquent than white families, after controlling for the other variables shown here.
For those who are more likely to have a serious delinquency, the authors also found:
With all other factors being held constant, the authors also examined families who might be less likely to become seriously delinquent on a loan obligation—and, by extension, less vulnerable to a shock such as the pandemic:
Overall, people with longer-term assets such as home equity and retirement accounts—as well as greater liquidity—were less likely to report a serious delinquency, the authors concluded. That also suggests they are better equipped to deal with an income shock such as COVID-19.
So, are there other factors when it comes to predicting serious delinquency? The second post in this series will examine the role of race and ethnicity.