US households in better financial shape at end of 2021 than pre-pandemic

March 28, 2022
Written By:
Jared Wadley

U.S. households were in a better financial position, on average, at the end of last year than in 2019, despite widespread joblessness and economic uncertainty during the COVID-19 pandemic, according to a new University of Michigan report..

Researchers at U-M Poverty Solutions attribute this financial stability to the unprecedented, cash-based safety net response by the federal government during the pandemic, which included expanded unemployment insurance, a series of economic impact payments (also known as stimulus checks), and monthly payments to families with children through the expanded Child Tax Credit.

The analysis revealed that the percentage of Americans with poor credit scores fell in 2021 to the lowest rate in at least 16 years, and available measures of liquid assets indicate low-income households had more cash on hand at the end of 2021 than in 2019, even after accounting for inflation.

However, early data from 2022 suggest the expiration of COVID-19 safety net policies may negatively impact the financial well-being of families in the year ahead.

“Inflation remains a great concern, but it should be placed in the broader context of the historic success of the COVID-19 pandemic economic recovery. There’s evidence that the end of monthly Child Tax Credit payments is taking a heavier toll on families’ financial well-being than inflation,” said Patrick Cooney, assistant director of policy impact at Poverty Solutions.

Cooney co-authored a new policy brief with Poverty Solutions faculty director H. Luke Shaefer and Samiul Jubaed, a data and policy analyst at Poverty Solutions. The report builds on Poverty Solutions’ ongoing analysis of material hardship levels during the pandemic, which refers to households’ ability to afford basic necessities.

Researchers tracked two types of material hardship, based on responses to the U.S. Census Bureau’s Household Pulse Survey. Food insufficiency is measured by how many households reported “often” or “sometimes” not having enough food to eat in the past seven days, and financial instability is measured by how many said it was “very difficult” to pay for usual household expenses in the past seven days.

During the pandemic, reported hardship levels reached a low point in April 2021, following the passage of the American Rescue Plan Act in March 2021. Material hardship rose slightly through June 2021 before falling again, gradually for adults without children and steeply for adults with children. Hardship rates then rose slowly after August 2021, timed with the expiration of expanded unemployment assistance, though the rise has been less severe among adults with children.

Historically, adults with children have experienced higher levels of material hardship than adults without children. But from July 2021 to January 2022, that gap narrowed—coinciding with monthly Child Tax Credit payments. In February 2022, after the Child Tax Credit payments ended, households with children experienced a steeper increase in levels of food insufficiency and financial instability compared to adults without children.

“In just six months in 2021, the expanded Child Tax Credit delivered on its promise to reduce hardship and income poverty in households with children. By implementing primarily cash-based and more universal safety net measures, we mounted the most successful response to an economic crisis in our nation’s history,” said Shaefer, the Hermann and Amalie Kohn Professor of Social Justice and Social Policy, who is among a group of poverty scholars who have long studied the potential of an expanded Child Tax Credit to reduce child poverty.

Other measures of financial health—including credit scores and bank account balances—indicate U.S. households were in a strong position overall at the end of 2021. Since 2013, the average credit score of American adults has steadily improved, rising between one and four points per year before rising by seven points in 2020 and further increasing in 2021. During the Great Recession of the late 2000s, the average credit score declined. In 2021, 15.5% of American adults had poor credit, compared to more than one-quarter in April 2010, following the Great Recession.


Researchers also found that bank account balances for households with low incomes were up more than 50% at the end of 2021 relative to pre-pandemic levels, when adjusted for inflation. From July to December 2021, households receiving Child Tax Credit payments saw steady gains in their bank account balances, which stands in contrast to greater volatility in account balances at other points in the pandemic.

“The data indicate the consistency of the Child Tax Credit payments provided households with children a certain amount of stability,” Jubaed said.


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