One Family Restaurant, Two Stories of COVID-19’s Financial Risks

July 08, 2020

When my family’s restaurant near Akron, Ohio, was forced to temporarily close in March, I wasn’t worried about my brother, who runs it, but about one of his hard-working employees, whom I’ll call Mary.  

My gregarious, life-of-the-party brother is a surprisingly disciplined saver. Like other small business owners, he’s taking a hit, but he has cash, retirement savings and home equity to fall back on to ride out the pandemic.

Meanwhile, Mary hasn’t been able to accumulate savings or own a home or car despite years of steady, hard work and relatively good pay: Family commitments and health challenges have held back her saving. As is the case for many career restaurant employees, Mary and other of the restaurant’s workers lived paycheck to paycheck until, of course, the paychecks stopped coming.

The restaurant employees are among the nearly 1 in 5 adults nationwide who lost their jobs, lost hours, or were furloughed in March or early April. They’re also among the most likely to have already depleted whatever savings or wealth they may have had—or are likely to do so once any government assistance they might have (like that obtained by the family restaurant for employees) runs dry.

Indeed, recent Fed data show that, pre-pandemic, just over 1 in 3 Americans faced with a $400 unanticipated expense would either have to borrow or sell something or would be completely unable to cover it. That number spikes to more than half—half!—of Americans if they lost their jobs or had hours significantly reduced because of the pandemic.

Such concerns about Mary and many of the restaurant’s employees I’ve come to know since I was a kid prompted me and my colleague Lowell Ricketts to wonder, “Which families should policymakers and other decision-makers be most worried about when an income ‘shock’ such as COVID-19 arises?” After all, workers’ stories are powerful, but without good data, it’s hard to target assistance where it’s most needed.

Serious Delinquency as a Barometer

Lowell, lead analyst for our Center for Household Financial Stability, abuzz with ideas from his master in statistics program at Washington University in St. Louis, suggested we look at serious delinquencies. Technically, that means someone is two months or more behind on a current debt obligation, such as a mortgage, credit card or car payment. Realistically, it means you’ve started descending a path that may lead to the repo guy seizing your car in the middle of the night, your belongings getting dumped on the curb, or bankruptcy.

So, serious delinquency is a serious matter, as well as a pretty reliable barometer of who’s already living on the edge.

Mining nearly three decades of data from the Federal Reserve Board’s Survey of Consumer Finances, here's what we found:

  • Households facing the greatest risk of serious delinquency are those that lack at least two months’ income in “safe” or liquid assets (such as cash, and money in checking and savings accounts) and those with debt burdens that are too high relative to their income.
  • Families with “convertible” wealth such as home equity are less likely to fall seriously behind on a debt obligation.
  • Race and ethnicity matter in predicting serious delinquency, but the relationship is complicated.

In other words, my brother and Mary appear to reflect the household finances data: He has more than two months of income in safe assets and some wealth to fall back on, while Mary has neither.

You can see details about who’s at risk in the chart.

Households at Greatest Risk of Serious Delinquency Lack Liquid Assets and Have High Debts

SOURCES: Federal Reserve Board's Survey of Consumer Finances and Center for Household Financial Stability calculations. The chart is from "Which Families Are Most Vulnerable to an Income Shock such as COVID-19?" an In the Balance article by Lowell Ricketts and Ray Boshara published May 1, 2020.

NOTES: The bar chart shows the percent change in the likelihood of serious delinquency. Each bar compares two groups. For example, the top bar shows that households with less than two months of income in “safe” or liquid assets were 306% more likely than households that had those assets to become seriously delinquent on a debt.

Where to Take Action

So, what do policymakers, foundations and nonprofits do with this insight? Well, beyond supporting existing and emergency safety net programs for families—as well as public efforts to keep businesses like my family’s restaurant open—here’s what could help:

Promoting efforts to build up “liquidity”

Liquidity includes emergency savings and access to reasonably priced, shorter-term loans. A ton of great research has concluded that nothing is more critical to family financial stability than liquidity. 

Easing debt burdens

Lightening the loads on mortgage, automobile and student loan payments could really help, especially as those are also poised to spike as the pandemic continues. 

Restoring or building wealth

Finally, after the pandemic crisis, when policymakers may hopefully attempt to make families financially whole again, we should help families restore their wealth, or build it up if they had little to begin with.

That’s because wealth provides economic resilience or “buffers” when things like pandemics, recessions, hurricanes, health emergencies, and home and auto repairs inevitably come along. 

And wealth also offers the prospect of upward economic mobility and the American dream—like that home, college education, small business, or retirement account that Mary, despite her hard work over many years, has not yet been able to achieve.

But as the restaurant slowly ramps up its business, Mary is taking up shifts—and continuing to push for that dream.

About the Author
Ray Boshara
Ray Boshara

Ray Boshara is a senior advisor and assistant vice president of the Institute for Economic Equity at the Federal Reserve Bank of St. Louis. He is also a senior fellow in the Financial Security Program at the Aspen Institute. Read more about Ray's publications.

Ray Boshara
Ray Boshara

Ray Boshara is a senior advisor and assistant vice president of the Institute for Economic Equity at the Federal Reserve Bank of St. Louis. He is also a senior fellow in the Financial Security Program at the Aspen Institute. Read more about Ray's publications.

This blog explains everyday economics, explores consumer topics and answers Fed FAQs. It also spotlights the people and programs that make the St. Louis Fed central to America’s economy. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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