We explore three coping strategies: using high-cost financial resources, relying on informal financial support networks, and having emergency savings. These strategies differ concerning the source of financial support, likelihood of use, and association with financial difficulties across household demographic and financial characteristics. Understanding these differences can help policy makers fashion better policies to build financial resilience for all households, not just those with social and economic advantages heading into a major crisis.
This first paper, Examining the Use of High-Cost Financial Resources over the Course of the COVID-19 Pandemic, examines the use of financial services such as payday loans and bank overdrafts during the pandemic. The authors find that 50% of the usage of these high-cost resources was related to experiencing job and income losses due to COVID-19. This coping strategy allows households to meet their needs when they lack cash, savings, and/or credit cards, but it comes with high interest rates and fees that can exacerbate financial distress.
The second paper, Did Access to Informal Financial Support Networks Moderate the Impact of Income Loss during the COVID-19 Pandemic? Evidence from a National Survey, examines the use of financial assistance from friends and family members. This study found that participation in informal financial support networks (IFSN) was much higher among lower-income households, especially those that receive formal support via public assistance programs, and was associated with higher levels of material hardship.
The third paper, Job Loss and Financial Distress during COVID-19: The Protective Role of Liquid Assets, examines the extent to which liquid financial assets helped mitigate the impact of job and income loss on various financial difficulties in U.S. households. The buffering effect of liquid assets on financial difficulties amidst job loss was found for most types of financial problems, albeit only for households with at least $8,000 in liquid assets.
Together, these papers stitch together a portrait of the variety of ways U.S. households have coped financially with COVID-19. While these strategies helped households get by while they waited for government assistance, differences in their use show that some households were better financially prepared for the pandemic, a result of pre-existing economic inequality that needs to be addressed with bold policy changes as the country recovers economically.