How Are Americans Paying their Bills During the COVID-19 Pandemic?
Jun 3, 2020
Photo by Brendan McDermid/Reuters
Despite some recent increases in employment and spending, many U.S. households continue to struggle financially as the coronavirus disease 2019 (COVID-19) pandemic continues. There are particularly severe challenges among lower-income workers and among Black and Hispanic households.
Since May, RAND Corporation researchers have fielded surveys in the nationally representative RAND American Life Panel (ALP) to better understand household financial well-being during the current recession. In the results of the May 2020 wave of the survey, which was published in June, we found that nearly 30 percent of households were finding it difficult to cover their expenses.
The share of those experiencing financial difficulties is greater among individuals who were working in February than those who were not working then. This is perhaps because those who were not working include retired individuals, who are more likely to be living on fixed income from a pension or social security. In contrast, those who were working were more likely to face employment and income shocks because of the ongoing restrictions and changes in demand related to the COVID-19 pandemic. As a result, we focus on the 1,277 individuals in our survey sample who were working in February 2020.
We surveyed the individuals who were working in February four times: in May, June, August, and September 2020. As shown in Figure 1, over the course of our data collection, the share of people reporting that it was difficult to pay their bills grew slightly, from 27 percent in May (with 7 percent reporting that it was very difficult and 20 percent that it was somewhat difficult) to 32 percent in September (with 9 percent reporting that it was very difficult and 23 percent that it was somewhat difficult).
|Not at all difficult||71%||71%||65%||67%|
NOTES: Authors' analysis of ALP data. The sample was limited to respondents who were working in February 2020 (n = 1,277 in May; 1,137 in June; 1,148 in August; and 1,095 in September). Sampling weights from each wave are applied as discussed in Carman and Nataraj (2020).
One advantage of following people over time is that we are able to consider households who reported financial difficulty in at least one survey between May and September. This measure would capture individuals who experienced one month of financial difficulty or multiple months of difficulty.
We find that the share of respondents who experienced difficulty in at least one survey is considerably higher than the share who experienced difficulty in any given month. To calculate the share who experienced difficulty in at least one survey, we consider those who responded in May and look to see whether there is any point in our surveys when they reported financial difficulty. In May, 27 percent of respondents indicated that it was very or somewhat difficult for them to pay their bills. If we look longitudinally over all survey waves, nearly 45 percent reported difficulty at some point (13 percent reported that it was very difficult to cover expenses at least once, and 30 percent reported that it was somewhat difficult at least once). Some respondents to the May survey did not respond to all three subsequent waves (about one-third of those respondents missed at least one of the subsequent surveys). For those who missed a wave, we might underestimate the share of respondents who experienced financial difficulty because we might not observe a period when financial difficulties occurred, which could switch our indicator from never experiencing difficulty to ever experiencing difficulty.
We also find striking differences across racial groups. In Figure 2, we compare difficulty paying bills in May with difficulty paying bills in at least one survey between May and September, by race and ethnicity. In May, 20 percent of non-Hispanic White respondents reported financial difficulties, compared with 42 percent of non-Hispanic Black respondents and 47 percent of Hispanic respondents. As in the overall sample, the share who experienced difficulty at any point during our four waves is about 15 percentage points higher than the share who experienced difficulty in the first wave for all three of these groups.
|May survey||All surveys|
NOTES: Authors' analysis of ALP data. The sample was limited to respondents who were working in February 2020 and who responded to the May survey wave (n = 1,277). Sampling weights from the May wave are applied as discussed in Carman and Nataraj (2020).
Unsurprisingly, financial difficulties were more common among lower-income households (Figure 3). Among respondents who were working in February, 53 percent of lower-income households (whose household income is under $25,000) and 30 percent of middle-income households (between $25,000 and $124,999) experienced financial difficulties in May; only 9 percent of higher-income households (above $125,000) experienced financial difficulties during that period. More than 70 percent of lower-income households reported financial difficulties at any point in our four waves of surveys (nearly 20 percentage points higher than the share who reported difficulties in the first wave). Similarly, 47 percent of middle-income households and 20 percent of higher-income households reported financial difficulties at some point.
|May survey||All surveys|
|Less than $25,000||53%||71%|
|$125,000 and up||9%||20%|
NOTES: Authors' analysis of ALP data. The sample was limited to respondents who were working in February 2020, who responded to the May survey wave, and for whom household income data are available (n = 1,275). Sampling weights from the May wave are applied as discussed in Carman and Nataraj (2020).
Finally, we examine how households were making ends meet or how they would have addressed an unexpected expense of $400 in May relative to September. Here, we compare those who reported that it was very or somewhat difficult to pay their bills during any one of the four survey waves with those who did not report difficulty in any of the waves to which they responded. Nearly everyone reported that they tried (or would have tried) to use their assets (including using money in their checking account or putting expenses on a credit card that they pay off at the end of the month) to make ends meet (or address an unexpected expense); even those who reported financial difficulties indicated that they used assets when they could. But strategies are very different for those who reported having experienced financial difficulty versus those who did not report experiencing difficulty. Those who reported financial difficulty were more likely to turn to formal credit (including credit cards, bank loans, and payday loans) or informal methods (including borrowing from friends and family and selling something) than those who did not. Over time, those who reported financial difficulty became even more likely to turn to formal credit, use informal methods to meet their expenses, or report that they cannot cover expenses at all. Only those who reported financial difficulties indicated that they had asked or would ask for an extension in paying their rent or mortgage, both of which are easier under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Reported use of stimulus funds declined over time, likely because people have already spent the funds or because they have put the funds in their checking or savings accounts and so consider those funds to be part of their existing assets.
|Reported difficulty paying bills at any point in May survey||Reported difficulty paying bills at any point in September survey||Did not report difficulty paying bills at any point in May survey||Did not report difficulty paying bills at any point in September survey|
|Use informal methods||41%||45%||8%||7%|
|Would not be able to pay||25%||30%||2%||3%|
NOTES: The sample was limited to respondents who were working in February 2020 and who responded to both the May and September survey waves (n = 1,095). Sampling weights from the September wave are applied as discussed in Carman and Nataraj (2020).
Although no income group has been spared financial difficulties, the most-vulnerable households have been hit the hardest. The share of those who report difficulty in paying bills might be rising for several reasons, including having already drawn down savings and the expiration of the additional $600 per week unemployment insurance benefit from the Federal Pandemic Unemployment Compensation program at the end of July. Furthermore, the strategies that these financially vulnerable households are using to address financial difficulties have shifted over time, suggesting that the situation has become more dire for many households. Heading into the holiday season, our preliminary analysis of a December survey wave suggests that many people plan to spend less than usual on holiday gifts this year, which could indicate continuing financial hardship. The pending loss of unemployment insurance for many, driven by the expiration of CARES Act provisions and the potential "triggering off" of Extended Benefits in many states, is likely to increase these financial problems (Bauer, Edelberg, and Lu, 2020).
This report describes a subset of results from a survey fielded through the RAND American Life Panel (ALP) to assess the wide-ranging effects of the COVID-19 pandemic on individuals and households. A technical description of the survey that includes a description of the ALP, the objectives of the survey, and information about the fielding of the survey are presented in Katherine Grace Carman and Shanthi Nataraj, 2020 American Life Panel Survey on Impacts of COVID-19: Technical Documentation, Santa Monica, Calif.: RAND Corporation, RR-A308-1, 2020.
This study was undertaken by RAND Education and Labor, a division of the RAND Corporation that conducts research on early childhood through postsecondary education programs, workforce development, and programs and policies affecting workers, entrepreneurship, and financial literacy and decisionmaking. More information about RAND can be found at www.rand.org. Questions about this report should be directed to the lead author, Katherine Carman, at firstname.lastname@example.org, and questions about RAND Education and Labor should be directed to email@example.com.
Funding for this research was provided by unrestricted gifts from RAND supporters and income from operations.
This report is part of the RAND Corporation Research report series. RAND reports present research findings and objective analysis that address the challenges facing the public and private sectors. All RAND reports undergo rigorous peer review to ensure high standards for research quality and objectivity.
Our mission to help improve policy and decisionmaking through research and analysis is enabled through our core values of quality and objectivity and our unwavering commitment to the highest level of integrity and ethical behavior. To help ensure our research and analysis are rigorous, objective, and nonpartisan, we subject our research publications to a robust and exacting quality-assurance process; avoid both the appearance and reality of financial and other conflicts of interest through staff training, project screening, and a policy of mandatory disclosure; and pursue transparency in our research engagements through our commitment to the open publication of our research findings and recommendations, disclosure of the source of funding of published research, and policies to ensure intellectual independence. For more information, visit www.rand.org/about/research-integrity.
This document and trademark(s) contained herein are protected by law. This representation of RAND intellectual property is provided for noncommercial use only. Unauthorized posting of this publication online is prohibited; linking directly to this product page is encouraged. Permission is required from RAND to reproduce, or reuse in another form, any of its research documents for commercial purposes. For information on reprint and reuse permissions, please visit www.rand.org/pubs/permissions.
The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.