Bars of gold

Billionaires Got Much Richer in Pandemic

In the COVID-19 downturn, this blog has had a steady supply of stories and statistics about the damage being done to low-income and middle-class families.

That’s one perspective on the pandemic. The growing billionaire class is another one.

Top 10 US billionairesSince last March, the nation’s 660 billionaires have added more than $1 trillion to their wealth – a 39 percent increase. Their combined net worth is now $4 trillion, which is nearly double the $2 trillion held by the 165 million Americans in the bottom half, according to the Institute for Policy Studies’ new report.

“It’s a troubling sign that too much of society’s wealth and income is flowing upwards to that small group of people,” Chuck Collins of the Institute for Policy Studies said during an interview on NPR’s Fresh Air.

The institute’s report is based on Forbes magazine’s annual estimates of the net worth of the world’s richest people.

Inequality has always been with us, but economists say it has grown as billionaires’ wealth has hit stratospheric levels.

To be sure, inequality would’ve been worse without the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The $500 billion in direct assistance to families last spring prevented a surge in poverty, and the relief bill passed in late December is sending more aid to unemployed and under-employed people who need it.

The billionaires are getting richer for a couple reasons, starting with a surprisingly strong stock market in 2020. Despite the worst public health crisis in a century and a struggling economy, the Standard & Poor’s 500 stock index shot up 18 percent.

But some billionaires were also in the right place at the right time – a pandemic. …Learn More

The Cares Act

CARES Act’s Loan Forbearance is Working

As the pandemic was sinking into our collective consciousness a year ago, Congress, fearing economic calamity, allowed Americans to temporarily halt their mortgage and student loan payments.

By the end of October – seven months after President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act – Americans had postponed some $43 billion in debt, including car loans and credit cards, which many lenders deferred voluntarily. Billions more are still being added to the total amount in forbearance.

Fast action in Congress “resulted in substantial financial relief for households,” says a new study by researchers at some of the nation’s top business schools. Their recent analysis found that the assistance went where it was needed – to “financially vulnerable borrowers living in regions that experienced the highest COVID-19 infection rates and the greatest deterioration in their economic conditions.”

When lenders grant forbearance they agree to waive their customers’ debt payments for a specified period of time. For example, Congress said borrowers could request that their payments on federally backed mortgages be deferred by six months to a year.

Although forbearance was less visible than the checks taxpayers also received under the CARES Act, the financial lift was equally potent. Customers who received loan forbearance saved an average of $3,200 just on their mortgages last year – this compares with $3,400 in stimulus checks for a family of four.

Congress also automatically suspended all payments on federal student loans, saving borrowers an average $140 last year, and President Biden has just extended the forbearance until at least Oct. 1. Lenders, in an attempt to prevent massive loan defaults on their books, voluntarily gave consumers a break last year on two types of loans that weren’t part of the CARES Act: automobile loans ($430 saved) and credit cards ($70 saved).

Forbearance is only temporary relief, because the missed payments will eventually have to be made up. But in a telling indication that borrowers didn’t want to fall behind, just a third of the people who asked for debt relief actually used it. In these cases, forbearance “acts as a credit line” borrowers can draw on – if they really need it. …Learn More

New York during COVID-19

Struggling Workers’ Financial Woes Mount

The COVID-19 economy is really a tale of two worlds.

The stock market and housing market have largely shrugged off the economic slowdown. But severe financial problems are brewing for millions of workers who have lost their jobs or are earning less in a lackluster economy.

The assistance passed by Congress will certainly help. Still, half of all workers reported in a Transamerica Institute survey late last year that they are experiencing at least one employment disruption, whether a layoff, reduced work hours, shrinking paychecks and commissions, or an early retirement. A crisis also looms for thousands of renters if the Centers for Disease Control allows its eviction moratorium to expire at the end of this month.

Paying taxes is another big worry. When the pandemic struck and unemployment spiked last spring, the IRS postponed the deadline for filing federal taxes by three months, to July 15.

COVID-19 hasn’t gone away – and neither has concern about paying taxes. More than half of taxpayers said they might have to borrow money to pay their 2020 taxes this April, according to a LendEdu survey last month.

Other aspects of Americans’ financial problems were captured in two more surveys about the pandemic’s impact:

The Millennials who are still saddled with student loans have struggled for years to pay their other living expenses. The COVID-19 relief bill gave them a respite by suspending their monthly payments for most of 2020, and the U.S. Department of Education extended that at least through January. But one financial problem has been replaced by others for the young adults who are unemployed or earning less.

About one in five people in their late 20s and 30s reported in a 2020 survey by Georgetown University’s business school that the pandemic forced them to take a variety of stopgap financial measures. These have included dipping into retirement funds, delaying or reducing credit card payments, and getting food and rental assistance from non-profits. …Learn More

Belongings on the lawn

Crisis for Renters Threatens to Get Worse

Many unemployed and underemployed workers have run out of options for paying the rent. The National Low Income Housing Coalition, the Aspen Institute, and other organizations estimate that up to 40 million renters risk being evicted this winter. Congress is currently negotiating a new COVID-19 relief package but it’s not yet known whether it will extend a CDC moratorium on evictions or go beyond the Cares Act last spring and provide rental assistance to help renters and, by extension, their landlords.

Squared Away spoke with Sarah Saadian, vice president of public policy for the National Low Income Housing Coalition, about what she describes as an impending calamity.

Q: How bad is the current situation?

Saadian: It’s really hard to get data on how many people have been evicted because there isn’t a national database – only state data. But we know that nearly one in five renters are behind on their rent, and they’re disproportionately Black and brown renters. When the CDC moratorium on evictions expires Dec. 31, renters are going to owe somewhere between $25 billion and $70 billion. That’s a huge amount of back rent that renters realistically can’t afford to pay off. So what we’re likely to see is a huge increase in evictions and, in the worse cases, homelessness unless Congress extends the moratorium and provides really robust resources for emergency rental assistance.

Q: What do you expect if the moratorium isn’t extended beyond Dec. 31?

It would be a calamity. Because of the loopholes in the CDC moratorium and because of the sheer amount of rent renters owe, if there’s any gap between when the moratorium expires and the Biden administration takes action – if they do – you’re going to see potentially millions of people lose their homes in the dead of winter when we’re dealing with a resurgence of COVID. It’s an emergency on top of an emergency.

Q: A UCLA study said that 44 states had moratoriums but that 27 have lifted them and that the resulting evictions have resulted in more than 10,000 deaths. Make the connection between housing and health.

When low-income people are evicted from their homes, they don’t have a lot of good options. They either are doubling or tripling up with other families, or they go into homeless shelters. In either case, it’s more difficult to social distance, and it’s easier for the virus to spread. If Congress doesn’t take action, it harms all of us. Not only does it mean more of us dying from COVID but it puts more strain on our health care system. 

Q: This is a complicated issue, because small landlords have to pay their mortgages and can’t necessarily afford to cover tenants’ rents. What is your position on that?

The best solution for both renters and landlords is emergency rental assistance because that eliminates the back rent renters owe and makes up the lost income landlords need to operate their property. It is not every day that landlords and renters can agree. A lot of landlords don’t like the moratorium but it’s absolutely essential to have an extension of the CDC moratorium at least until state and local governments can distribute rental money to people in need. Even if Congress provides emergency rental assistance, but doesn’t extend the CDC moratorium, then millions of people will still lose their homes.

Q: You mentioned minorities are particularly affected by evictions. How about particular states or income groups? Rural vs urban renters? Learn More

Workers racing

Retirement System Urgently Needs Fixing

The state of our retirement preparedness is captured in this fact: about half of U.S. private sector workers at any given time are not enrolled in an employer retirement plan.

To be clear, they are not currently enrolled. Some of them have participated in a plan in the past or will in the future. But this inconsistency is the problem, largely because so many employers still don’t offer 401(k) savings plans to their employees.

The financial toll of not saving consistently is modest retirement account balances. Yet saving has become increasingly urgent as traditional pensions have virtually disappeared from the private sector and Social Security is replacing less of workers’ incomes over time.

401k and IRA chartIn 2019 – after several years of economic growth and a surging stock market – the typical working household, ages 55 to 64, that saves in a 401(k) had only $144,000 in its 401(k)s and IRAs combined, the Center for Retirement Research found in an analysis of the Federal Reserve’s 2019 Survey of Consumer Finances.

That’s just $9,000 more than they had in the 2016 survey, and $144,000 won’t go very far.

A $144,000 account would yield $570 per month for retirement if a couple purchases an annuity that pays a guaranteed income for the rest of their lives. For most retirees, the annuity payments – totaling just under $7,000 per year – would be their only source of income outside of Social Security.

There are also enormous differences between high- and low-income households’ savings, which reflect the nation’s economic disparities and uneven employer coverage. The highest-income older households in the study had $805,500 in their combined 401(k) and IRA accounts, compared with just $32,200 for low-income households. …Learn More

The Economics of Being Black in the U.S.

Unemployment DisparitiesThe COVID-19 recession demonstrates an axiom of economics. Black unemployment always exceeds the rate for whites, the spikes are higher in recessions, and, in a recovery, employment recovers more slowly.

A record number of Black Americans were employed in 2019. But when the economy seized up in the spring, their unemployment rate soared to 17 percent, before floating down to a still-high 12.1 percent in September.  Meanwhile, the white unemployment rate dropped in half, to 7 percent.

The much higher peaks in the unemployment rate for Blacks than whites and the slower recovery are baked into the economy.

This phenomenon occurred during the “jobless recovery” from the 2001 downturn. When the economy had finally restored all of the jobs lost in that recession, the Black jobless rate remained stubbornly higher.

And after the 2008-2009 recession, as the University of California, Berkeley’s Labor Center accurately predicted at the time, Black unemployment hovered at “catastrophic levels” longer than the white rate did.  This disparity is now the issue in the COVID-19 recession.

Geoffrey Sanzenbacher, a Boston College economist who writes a blog about inequality, gives three interrelated reasons for Black workers’ higher unemployment rates.

First, “The U.S. still has a tremendous amount of education inequality, and the unemployment rate is always higher for people with less education,” he wrote in an email. Despite the big strides by Black men and women to obtain college degrees, roughly 30 percent have degrees, compared with more than 40 percent of whites, he said.

Second, Black workers without degrees are vulnerable because they are more likely to earn an hourly wage. An hourly paycheck means that a company can cut costs by simply reducing or eliminating a worker’s hours. “It’s much easier to lay off hourly workers, whose employment is more flexible by nature, than salaried workers,” Sanzenbacher said. …Learn More

Students in class

How High School Finance Courses Fail

States with personal finance course requirementIn more than 30 states, completing a personal finance course is required for a high school degree.

The requirement started gaining traction around the country in 2005, despite the long-running debate about whether the courses even work.

A new study gets at whether high school instruction is effective by asking a fresh question: do the finance classes make people feel better about their situation – and feeling better about one’s finances is an indication things are, in fact, improving.

This departs from past studies focused on objective measures like credit scores and past-due loans.

The researchers find that high school courses have generally been a positive development: adults who grew up in states that require the courses do, in fact, feel better about their finances compared to people from states lacking a requirement.

But what’s interesting in this study is that a group of disadvantaged Americans feel worse off for having taken the courses: high school graduates who didn’t go on to college. Rather than helping them manage their financial challenges, the classes are only making things worse.

Before examining the reason for this, consider how the researchers measured the feeling of well-being. They used recent data from a series of questions asked by the FINRA Investor Education Foundation: Do you feel you have control over your money? Could you afford an unexpected expense? Do you have a sense of achieving your financial goals?

Most important, FINRA asked, do you have the financial “freedom to make choices that allow a person to enjoy life”? FINRA’s survey was conducted in 2018, but this question is relevant in the COVID-19 recession. Enjoying life is essentially the flip side of having financial stress, which is currently very high among low-income workers without college degrees.

The researchers argue that adults with no more than a high school diploma who’d taken the personal finance classes feel worse, because the classes delivered a “harsh dose of reality” that can “make economically vulnerable people more aware of their precarious financial situation.” …Learn More