Measuring the Relationship between COVID-19-Related Shocks and Financial Well-Being

Background. The effects of the COVID-19 pandemic are already present, but the long-term impacts will reverberate throughout the United States economy. At the time of this writing, the U.S. unemployment rate is 14.5%, a level not seen since the Great Depression. This pandemic will very likely exasperate existing inequalities in U.S. social and economic systems, and place economically vulnerable individuals at risk of extreme hardship. To understand the impact of COVID-19 on household finances, this study employs a novel, longitudinal survey of U.S. households to investigate the degree to which COVID-19-related shocks and hardships impact a holistic measure of household financial well-being, and how these impacts are mitigated or exacerbated by households’ pre-COVID demographic and financial circumstances.

To measure household financial well-being, we employ the Consumer Financial Protection Bureau’s financial well-being scale (CFPB, 2015), which defines financial well-being in terms of a household’s control over their day-to-day and month-to-month finances, ability to absorb financial shock, their feeling of being on track to meet goals and their financial freedom to make choices to enhance their lives (CFPB, 2015). While there exists research investigating this measure cross-sectionally (Collins & Urban, 2018; Walker et al., 2018), there is relatively little research examining how financial well-being changes over time and there is functionally no research examining how households’ financial well-being changes in the event of large-scale economic shocks. This paper fills this gap in the literature.

Data and Methods. Data collection for this study is still in process but will result in a minimum of three online survey waves administered at three-month intervals. The first wave began in mid-April and each wave is expected to have approximately 5,000 respondents. Quota sampling will be used to ensure the sample is nationally representative and generalizable to the wider population.

To assess the relationship between COVID-19-related shocks and financial well-being, we employ propensity score weighting techniques to (1) predict the likelihood that a household experiences a COVID-related shock or hardship, and (2) to estimate the impact of a given shock or hardship on financial well-being. Measured COVID-related shocks and hardships will include the loss of a job or income, being placed on furlough, being evicted from a residence, experiencing food insecurity, skipping essential bills, or being unable to access unemployment benefits due to COVID-19.

In addition to understanding how these shocks and hardships impact the full sample of U.S. households, we will also assess the degree to which these impacts are felt by different key subgroups, including low-income households, racial/ethnic minority groups, and asset-poor households.

Implications. Given the massive implications of the COVID-19 pandemic on households’ physical and financial health, understanding the degree to which the COVID-19 pandemic is differentially being felt by vulnerable households can help shed light on the allocation and types of resources these households will need to recover. While large-scale macroeconomic data can help outline the contours of these disproportionate effects, our work will use a context-rich survey to assess the fine details of COVID-19’s impacts on household financial security.