By Shrey Shetye
A year into the COVID-19 pandemic, there is no doubt the U.S. economy has begun to show signs of recovery. The Commerce Department reported on February 25th that the GDP grew at a steady 4.1% in the last three months of 2020, following up on the unprecedented 33% annualized growth in Q3. Economists now project that the economy will grow by 6% in 2021, the fastest annual GDP growth since 1984, and all indicators seem to show an economy that has been more resilient than initially expected.
However, these reports fall into a common trap with economic indicators: headline figures that seem to indicate one thing, but obscure underlying trends found a level deeper in the data. The reality is that despite the growth in the second half of 2020, the U.S. economy remains fragile and the pandemic has only exacerbated economic inequalities that already existed prior to the crisis. Of the 22 million jobs lost in March and April 2020, nearly half still remain unfilled. While high-wage employment (jobs earning >$85k/yr) has mostly recovered to pre-pandemic levels, low-wage employment is still down 15%, a clear indicator of a “K-shaped” recovery that leaves the working class disproportionately worse off.
It’s because of disparate economic indicators that in 2018 Flourish Ventures supported the Financial Health Network to help develop the U.S. Financial Health Pulse report and obtain a more holistic snapshot of financial health in the U.S. beyond traditional economic indicators. We wanted to understand what the majority of Americans are facing to inform and equip the larger ecosystem so that all stakeholders can work in concert to improve the financial health of Americans. Armed with more granular perspectives about Americans’ financial lives, providers can deliver higher-quality services, nonprofit organizations can better understand the financial health of populations they serve, and policymakers can leverage insights to inform policy and foster innovation.
The 2020 Pulse report measured the overall financial health of more than 6,000 people who were asked simple questions across four categories: how they spend, save, borrow and plan for the future. It also provides granular insights into American households’ financial behaviors and the study’s longitudinal nature allows us to see how financial health changes for the same set of households year over year. More than ever, the report results emphasize the importance of taking a look “under the hood“ of economic data to understand what’s really going on.
At first glance, the 2020 Pulse report indicated that financial health in America has actually improved year over year (33% of Americans are financially healthy in the 2020 report, up from 29% in 2019) with positive trends across nearly all of the eight indicators of financial health as defined in the report. However, the report was based on responses during July-August 2020, a period in which consumers were coming off an extended economic recovery and also benefited from a number of temporary policy interventions including the one-time Economic Impact Payments, an additional $600 in federal unemployment insurance, deferrals on student loans and other debt obligations, as well as eviction moratoriums.
Since then, a number of these policies have expired and will only now be replaced by the $1.9 trillion stimulus bill recently approved by the Senate. Thus, the findings presented in the report likely reflect the “high water mark” for financial health in 2020, as the new stimulus may well push households to higher levels in 2021. This is best displayed in the transactional data incorporated into the Pulse report, which complements the qualitative survey responses and provides even more detail into American households’ financial lives. The Pulse report chart below shows the trend in median inflows to a subset of respondents’ liquid accounts adjusted for stimulus payments and tax refunds:
Clearly, while total inflows did increase significantly this year and helped improve financial health, taking a look at the detailed transactional data reveals that most of the increase was due to temporary stimulus payments and tax refunds that consumers won’t be able to take advantage of consistently. Adjusting for those one-time increases, inflows in fact appear to have improved only slightly.
Taking a slightly deeper look at the data also highlights staggering disparities across income, race and gender that are obscured by the overall financial health figures. For instance, let’s go back to the data point on how 33% of Americans are financially healthy and the upwards trend from 29% in 2019. While this improvement seems promising, it was almost entirely driven by households that were better off: the proportion of financially healthy people among those with household incomes from $60,000-$99,999 increased 5% from 2019. The corresponding increase for people with household incomes more than $100,000 was 10%. Meanwhile, the proportion of people with household incomes below $30,000 that are financially healthy did not change significantly from 2019.
Along gender lines, in 2020, only 28% of women were financially healthy compared to 40% of men. This gap has persisted since 2018 when the respective figures were 23% for women and 33% for men. In addition, women are also far more worried than men about being able to make ends meet in the near future. Twenty-eight percent of women reported that they would struggle to pay rent, mortgage or utility bills compared to 20% for men, and 24% of women reported they would struggle to afford basic necessities such as food or healthcare compared to 17% of men.
The disparities are perhaps largest when it comes to race. As of August 2020, only 15% of Black people and 24% of LatinX people were financially healthy compared with 39% of White people and 39% of Asian Americans. The trend over time is especially worrying. Since 2018, survey data shows that the proportion of financially healthy people has improved among all racial and ethnic groups over the past three years except for Black households, for whom it has remained essentially the same.
At Flourish, we’re proud to support portfolio companies that aim to address these disparities and stepped up during the COVID-19 crisis to help consumers. Propel manages FreshEBT, the digital food stamps platform that helps low-income consumers manage benefits, save money and earn income. During the start of the COVID-19 shutdown, Propel made a significant contribution to the low income population by organizing a network of celebrities, VC firms and others to raise more than $100 million in emergency cash grants for low-income consumers. As another example, Steady is a digital gig worker platform that helps workers find high-in-demand jobs, and provides support with services such as telemedicine and rapid ACH cash deposits. During the COVID crisis, Steady partnered with The Workers Fund to distribute emergency cash grants of $100-1000 to Steady users.
Yet, the disparities highlighted in the most recent Pulse report are vast and will require multiple stakeholders across the fintech ecosystem to address the underlying issues that led to this point. Fintech has helped consumers cope with COVID-19 and will be critical to the economic recovery in the coming months. But there’s more to be done and we believe that both the private and public sector have a role to play. On the private side, we need more solutions that address the needs of the most vulnerable populations and reduce the disparities discussed above. On the public side, the current crisis has highlighted just how bare the digital financial infrastructure is in the US, and there needs to be more urgency around efforts that address this (for instance, accelerating the FedNow program to develop real-time, any-to-any retail payments so that stimulus checks don’t take weeks to arrive).
Whatever your role in the fintech ecosystem may be, we hope that the Financial Health Network’s Pulse report continues to build awareness of financial health. We also hope that it inspires investors, entrepreneurs, and public sector actors to work towards addressing not just the financial health challenges faced by two-thirds of Americans, but also the significant disparities across income, race and gender that a deeper look into financial health data revealed.