2020 was supposed to be Tara’s year. Seven years after buying a small business in New Jersey, she was finally set to sign a lease for a brick and mortar building. Then, like for millions of others in the US, COVID-19 brought those plans to a screeching halt. State lockdowns and social distancing put her dream of opening a permanent location on hold. Soon afterward her husband, an essential worker at the local airport, contracted COVID-19. He lost his battle with the disease, becoming one of the first of the over 220,000 people who have died since coronavirus reached the United States.
Tara’s story is one of millions from people across the country—low- and middle-income households slowly building wealth during the long recovery from the Great Recession, only to have their financial security derailed in the wake of the pandemic. According to new data from the Federal Reserve, despite the past 10 years representing the longest period of economic expansion in US history, 90 percent of households had not fully recovered from the Great Recession before the pandemic hit. If Congress and the President don’t respond more forcefully to this crisis than the last one, we risk setting people like Tara back another decade or more in their efforts to achieve the American dream.
It doesn’t take much to go from an upward trajectory to a downward one. In Tara’s case, dominos set her on a negative financial spiral. In addition to the deep grief of losing her husband, she was one of 5 million Americans who lost health insurance in the middle of the pandemic. Like a third of US adults, she lost income to pay the bills. Without these foundational building blocks of financial security, it is nearly impossible to build for the future.
With negotiations for a new COVID-19 rescue package stalled in the face of the election, prospects are dimming that people like Tara will get more help before next year. The consequences are stark. As many as 30 million people risk eviction in the coming months, 26 million rely on expanded unemployment benefits, and nearly one in eight households in America struggle to put food on the table. In addition to supporting households through their immediate health and safety needs, the cash Americans received through expanded unemployment benefits and checks from the first round of federal coronavirus aid helped prevent people from running up their credit card balance, dipping into savings, or raiding retirement funds. These safeguards are particularly important given the Federal Reserve’s data showing how little wealth households were able to build up during the recovery. On the basis of net worth, the vast majority of Americans were less prepared for COVID-19 than they were in 2007.
Why was it so hard to build wealth during the recovery? Here’s what we know from the last recession. First, while wages did grow during the recovery, by multiple measures those wages have not kept up with the growing costs of essentials, including housing, childcare, healthcare, and higher education. Instead of positive cash flow contributing to investments, it went to meet ever-growing costs.
On the asset side, for low- and moderate-income households the Great Recession was particularly devastating for their primary wealth-building tool: home equity. Foreclosures from the Great Recession hit wealth for those households hardest and increased down payment requirements have tightened credit and made it harder to rebuild those assets. Additionally, the rising tide of the stock market does not lift all boats. 84 percent of stocks are owned by the wealthiest 10 percent of Americans. This concentrated the gains of the economic recovery in the hands of the richest Americans.
Finally, debt has increasingly weighed down American households. As Aspen Institute and Wall Street Journal analyses have shown, nonmortgage consumer debt has surged since 2010, driven primarily by student and auto loans. Forget net worth— research indicates that nearly one in five households now lives in or near a state of “net debt” meaning they owe more than they own. These unprecedented levels of debt not only limit personal capacity for investment but without relief, it will pose a threat to economic growth for years to come.
These trends have been worse for people of color. Federal Reserve data show that white households held significantly more wealth than Black and Hispanic households entering the pandemic, with Black households holding less than 15 percent the wealth of white households, and Hispanic households holding less than 20 percent the wealth of white households. Our inability to address the racial wealth gap during the last ten years of recovery has contributed to the disproportionate financial and health costs Black and Hispanic households have faced during the pandemic.
For the sake of people like Tara, Congress and the president need to extend federal aid to the millions of households in crisis and fight the coronavirus as soon as possible, even if it means action after the election. At a minimum, people need the basic human dignity of being able to afford the necessities: a roof over their head, food on the table, and medical care. But we must set our sights higher. Federal policymakers must also advance an ambitious recovery agenda with wealth building at its center to ensure households don’t backslide another decade. To do otherwise is to give up on the American dream.
Ida Rademacher is the executive director of the Aspen Institute Financial Security Program. Tim Shaw is the senior policy manager for the Aspen Institute Financial Security Program.