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    It's back to reality for cash-strapped consumers as pandemic stimulus payments dry up

    By Russ Wiles, USA TODAY NETWORK,

    27 days ago

    American households are on their own, now that pandemic-related stimulus funds have been exhausted.

    Consumers have been drawing down those excess savings over the past three years, using the money to deal with inflation and other pressures. But the excess savings, in the aggregate, officially dried up earlier this year, noted Jeffrey Roach, chief economist for LPL Financial in a recent report. The money had been distributed in three main rounds from early 2020 to early 2021.

    With the relief funds drying up, more people have been struggling to pay bills , bank deposits have declined, credit card balances have pushed above $1 trillion and other financial problems have worsened. Still, the depletion of stimulus funds might not be enough to slow the economy by much, and cash-stressed consumers have options to improve their situations, if they haven’t tried them yet.

    Savvy saver: Don’t make these mistakes when climbing out of debt

    Roach indicated in his commentary that excess savings peaked at $2.1 trillion in August 2021, citing data from the Federal Reserve System, the Bureau of Economic Analysis and other sources.

    Early in the pandemic, consumers faced some limitations for spending their money, as on travel – another factor that helped to pad their bank accounts. But since the peak three years ago, Americans as a group have spent down the excess fairly steadily. Many made up for lost time by splurging on goods and services .

    Could depleted stimulus funds stall the economy?

    Consumer purchases account for about 70% of economic activity.

    With the surplus savings depleted, it raises the question of whether spending will slow enough to undermine the economy, though many economists, including Roach, still aren’t forecasting a recession anytime soon.

    One favorable factor, in his view, is that many homeowners refinanced mortgages years ago and are benefitting from lower borrowing costs. “The extra money saved from lower mortgage costs will likely offset the decline in excess savings,” he predicted.

    However, other economists have cited rising rents and mortgage payments as factors that are now contributing to financial stress for many others.

    “Consumers are continuing to adjust to the post-pandemic world,” said George Hammond, a research professor at the University of Arizona. They're dealing with lower savings, absent the stimulus payments, yet still face high prices for many items. Hammond cited reduced housing affordability in states such as Arizona, along with increased food and gasoline prices, as headwinds.

    Credit-card debts now running above $1T

    Many households already had exhausted their stimulus payments last year, if not earlier, said Amy Robbins, an associate director at Take Charge America, a Phoenix-based nonprofit that provides debt and credit counseling.

    For many people, the loss of stimulus funds and declining personal savings were worsened by job losses.

    "So, we guided clients on developing a new budget , reducing expenses, selling assets or enrolling in a debt-management plan to bridge the gap,” she said in an email.

    More: Best debt consolidation loans for bad credit

    While jobs generally have been plentiful, many consumers have struggled to make ends meet amid low wage gro w th that hasn't kept up with rising costs, she added. Also, some individuals face student loan payments, while others are having trouble affording housing, either from escalating rents or mortgages carrying high interest rates.

    It's no wonder that some households have responded by leaning on credit cards.

    Aggregate card balances have been running at or near record highs, above $1.1 trillion, for the past few quarters and up around $250 billion compared to a couple of years earlier. Robbins suggested that people who are struggling with high card debts seek a free counseling session from a nonprofit agency.

    “In many cases, consumers can pay off the debt on their own, but they need direction on how to do that with a new budget and lifestyle changes,” she said.

    Will the depletion of pandemic stimulus funds pull down the economy? Like Roach, Hammond said he isn't alarmed by the drying up of those savings, though he does expect muted personal-income growth to contribute to slower retail spending this year.

    Bank balances dwindling

    The economic landscape of late has been a mixed bag for households. While consumer financial health has gradually improved over the past six months or so, the changes are modest, and nearly half of Americans fall into the “vulnerable” category, stressed by high prices, according to a recent J.D. Power survey of bank customers.

    The study found that bank balances have been declining, with 53% of respondents saying they have less than $4,000 in combined checking, savings and other deposits at their primary bank.

    In part, that reflects some customers shifting money among banks in search of higher yields , lower loan rates, better rewards or other benefits, said Jennifer White, a senior director of banking and payments intelligence at J.D. Power. But it mostly reflects consumers struggling to keep up with rising costs. "They're having to use deposits to bridge that gap," she said.

    The J.D. Power study estimated that 40% of bank customers earn less than 1% on their money, while 23% don’t know what rate they are earning. The report predicts that bank customers will become more active in seeking out higher yields, as a way to gain any edge they can.

    White suggests that consumers build an emergency savings fund with an account that yields at least 3%. She also recommends seeking additional help with banks, such as online budgeting tools that can track spending.

    "These tools are built for everyone, not just the wealthy," she said.

    Reach the writer at

    This article originally appeared on Arizona Republic: It's back to reality for cash-strapped consumers as pandemic stimulus payments dry up

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