The Pandemic’s Impact on Financial Insecurity in the US

Households Face Financial Strain

The COVID-19 pandemic has created financial difficulties for millions of households. Even before COVID-19 struck, consumers were struggling with financial insecurity. Heading into the pandemic roughly one third of American households were not able to handle an unexpected $2,000 bill, while slightly more than one third found it hard to cover their monthly expenses.

Even in times when the economy was expanding and unemployment was low like in 2018, one in three Americans didn’t have the money to cover a $2,000 financial shock and/or were struggling with heavy debt. Since the pandemic, this has become worse for certain populations. These are just some of the findings from the FINRA Foundation’s Financial Resilience in America study, which was conducted just before the pandemic’s onset.

Women and Minorities at Most Risk

The study found that women and minorities were the most at risk for financial insecurity. Individuals who hold a bachelor’s degree tend to fare better than their counterparts without one, but not by a longshot. The study found 19.9% of Americans without a college degree struggle to make ends meet compared to 16.2% of those who are college-educated.

That is not to say college-educated people did not have their own problems. People with a bachelor’s degree had a much higher debt load due to student loans. The debt-to-income ratio for educated Americans stood at 130% compared to 82% for those without a bachelor’s degree.

Student Debt Weighs on Finances

For people in their 30s and 40s, the biggest financial insecurities tend to be centered around debt, including student loans, child-care costs, and home mortgages. As a result the debt-to-income ratio is around 136% for that age group. That compares to 82% for those under 30 and over 60. Among the 30- and 40-year-olds, 24% cannot meet all their expenses in a normal month and 56% found it difficult to meet their monthly financial obligations.

Taken altogether, the study underscores the fact that a lot of Americans were already in difficult financial situations heading into the pandemic and many are now worse off. The pandemic is still impacting the economy and causing financial difficulties for Americans. However, the Federal Reserve has recently said that the economy is making progress toward recovery, despite the Delta variant of COVID-19.

The Benefits of Automating Your Finances

Automating finances can not only be a smart money move, it could also help alleviate some of the stress surrounding payment deadlines. Some benefits of finance automation include helping avoid late fees and sticking to your monthly budget.

Plus, payment history makes up 35% of your credit score, so automating your finances could be a good way to stay on top of things. Set up SoFi Relay to track your spending, monitor your credit score, get payment reminders, and more.

Seasonality

A Weekly Column With Liz Young

Every week, SoFi’s Head of Investment Strategy shares her economic and market insights in order to help empower readers to take a more active role in their financial futures. This week, see what Liz has to say about seasonality.

Seasons of Change

While the hits keep coming in markets and the Fed seems to be the band that can’t write a bad song, there is chatter about “seasonality,” and autumn being a time period when markets tend to struggle. I don’t put a lot of weight on the calendar as a driver of market movements, but this autumn does have some notable forces at play.

What the History Books Say

Preceding the Great Depression, autumn of 1929 was a rough season for markets. On October 28th and 29th, the Dow fell 13% and 12%, respectively. By mid-November 1929, the Dow had lost almost half of its value.

Autumn of 1987 saw another crater in markets—on October 19th, the Dow dropped over 22%. In one day. A day that would go down as one of the most notorious crashes in stock market history.

Most recently, October 2007 marked the beginning of the decline in markets due to the Global Financial Crisis. From October 9, 2007 to March 9, 2009, the S&P 500 tumbled 56.8%.

Market crashes caused by the internet bubble and the events of September 11th also occurred in fall of 2001 and the market hit another bottom in fall of 2002.

Add those to the fact that on average, October sees the highest readings in the volatility index (VIX), and it’s no wonder people get a little nervous.

But the history books also say that market crashes have happened in February, March, May, July, and August. Average monthly performance in the S&P 500 since 1950 shows that September is only down -0.7%, with the average for October at a positive 0.9% (which is also comparatively higher than the averages for February, May, June, July, and August).

These historical autumn crashes just happen to be historically large—and more memorable as a result.

What the Current Events Calendar Says

This year does have a few hurdles to jump, which is why we’re hearing about trepidation in fall. Those upcoming hurdles are, in no particular order: the Fed tapering plan announcement, Congressional budget debate (including tax hikes), debt ceiling debate, delta variant blowback, and discussion around Fed Chair Jay Powell’s second term.

The proverbial “wall of worry” seems high.

Speaking of high, the S&P 500 recently clocked its 53rd new all-time high of the year, its highest number of records in a calendar year through August. Even absent the wall of worry mentioned above, this stat alone gives some concern that the market is “due” for a pullback.

What I Say

Don’t buy or sell based on the month of the year, the color of the leaves, or the fact that October of 1987 was a traumatic time for investors. These patterns are good to be aware of, but what’s happening in the now is more important. It is true that we haven’t had a meaningful pullback in a while, and pullbacks are normal (see last week’s column). Could one be coming? Sure. That’s always the case. Trying to call the day it will begin or end is a game I’ve never won, so I stopped playing. The wall of worry and the record number of records are reasons to go into autumn with your eyes wide open, but not reasons to expect a crash.

Oil Companies, Wireless Carriers Rush to Restore Service After Ida

Hurricane Ida Leaves Destruction in Its Wake

Hurricane Ida left devastating destruction in its wake. While doing so, it also upended the oil and telecommunication industries, which are now rushing to bring their operations back online. The Category 4 hurricane is estimated to have caused between $15 and $20 billion in damages.

Take the refiners Valero Energy (VLO), Marathon Petroleum (MPC), and Royal Dutch Shell (RDSA) for starters. They have oil refineries along the Mississippi River and are now figuring out the damages and how long it will take to get them back online. The refiners, which supply close to one quarter of the oil-refining capacity in the Gulf Coast, have to wait until power in the area is restored. All told it could take days to assess the damages and weeks to make the necessary fixes.

Impact at the Pump Muted

So far the impact to the oil and gas markets has been negligible, with US gas prices up less than one cent and gasoline futures unchanged earlier this week. It is expected to remain that way given inventories of gas were already up in preparation for the Labor Day weekend.

There is a risk if outages last long it could add to fuel-supply shortages in the regions hit by Ida. The day after the storm, close to 35% of gas stations in Baton Rouge and 30% in New Orleans were out of gas.

Wireless Carriers Aim to Restore Service

The telecommunications industry including Verizon (VZ), AT&T (T), and T-Mobile (TMUS) are rushing to get their cell towers fixed and internet service running again. As of Tuesday, about 15% of Verizon and AT&T cell sites remained offline, while T-Mobile said cell sites in areas hit hard by the storm were not operational. Road closures, debris, widespread flooding, and other obstructions are making it more difficult for the wireless carriers to restore service.

Hurricane Ida destroyed lives and property in its path. Oil and telecommunications companies have to move quickly to get power and gas back to the millions of people suffering from Ida’s damage.