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RESEARCH Household Pulse & Cash Buffer Management throughout the pandemic

Since March 2020, COVID-19 drove uncertainty in the U.S. economy first by being an unprecedented global health event and then by generating an equally unprecedented economic policy response. This uncertainty was further exacerbated by record high inflation and correspondingly high interest rates beyond the onset of the pandemic. Public data show the significant impact of these events on the overall spending and asset levels, but few if any recent data sources shed light on how families managed their cash balances throughout these changes.

In the Household Pulse: Balances through March 2023 and Household Cash Buffer Management from the Great Recession through COVID-19, we shed light on the evolution of household liquidity by analyzing inflation-adjusted real cash balances and cash buffers (liquid balances scaled to expenses). Across these reports, we highlight three key takeaways about household liquidity since the Great Recession with a particular focus on developments during the COVID era: 

  1. Over a relatively wide array of economic circumstances, households manage their liquidity to stable levels. From the Great Recession until just prior to the COVID-19 surge in liquidity, the typical family held a remarkably stable number of days of spending in their checking accounts. While aggregate cash buffers were quite stable, month-to-month changes in individual incomes can be highly volatile, with lower-income families being more likely to live paycheck-to-paycheck. That said, families tend to manage their balances towards a level of expense coverage and save or spend their way back to prior averages following shocks.
  2. Cash balances and buffers grew significantly during the COVID-era fiscal policy interventions, especially for low income, Black, and Hispanic families in relative terms. In levels, low-income, Black, and Hispanic families had substantially smaller cash balances and cash buffers than high-income, White, and Asian families—before COVID, as overall balances reached their peak, and as balances declined. From lower levels, low-income, Black, and Hispanic families saw the largest percent rise in cash buffers and balances at the pandemic peak relative to 2019 levels.
  3. Cash balances and buffers have retreated significantly from their COVID-era peaks as families adjusted their spending in the context of high inflation. As of the end of March 2023, real median cash balances were 10 to 15 percent elevated compared to the same period in 2019—the lowest elevation observed since April 2020. Following the pattern of individual-level dynamics seen prior to the pandemic, families have gravitated toward a relatively stable “normal” cash buffer level over time. Notably, Black families experienced a more rapid reversal of cash buffer gains, leaving a larger racial gap as of the end of 2022 compared to levels seen in the 2010s.