The financial assistance provided by the federal government under the Coronavirus Aid, Relief, and Economic Security (CARES) Act constituted a lifeline for millions of lower-income households across the country in the midst of the COVID-19 pandemic. Data from Prosperity Now’s Survey of Lower-Income Households (June-July 2020) reveals that, to a large extent, households that did receive the economic impact payments (EIP) used the funds to cover basic expenses such as groceries, utilities, and regular debt payments. Additionally, the EIP played a critical role in preventing financial hardship or the use of alternative financial products, some of which come with high interest rates or fees. 

Today, the U.S. Census Bureau will release the official poverty rate for 2019. While that figure is crucial to our understanding of poverty in America, the data are from 2019 before the COVID pandemic reached the United States. Consequently, this data is unlikely to reflect the current financial reality of the most vulnerable households. The findings discussed in this piece, however, can help illuminate a more current snapshot of lower-income households’ financial lives. 

According to the Prosperity Now Survey released last month, about 16 percent of lower- income households did not receive the EIP. And lower-income households that self-identified as White were roughly eight percentage points more likely to receive the EIP than their Black or Latino counterparts.  

Our new analysis reveals that for those households that did receive the EIP, the main ways in which those funds were used include: buying groceries (52.5%), paying utilities (42.2%), and making regular monthly debt payments (29.7%). Few used it in part or in total for “extras,” such as retail expenses (11%), entertainment (5.1%), or vacation (0.6%). 

Households that received the EIP were less likely to experience a financial hardship such as skipping or not paying full housing payment, skipping paying a bill or paying a bill late, skipping essential medical care/dental care/prescriptions, not being able to afford the amount or type of food needed, and over-drafting or borrowing from alternative financial services. Some of these hardships have costs and consequences associated with them—late fees, credit report damage, health consequences, and, certainly, added stress—and can lead to greater vulnerability for those who experience them. 

Those who received the EIP were also more likely to indicate that they would be able to pay their rent or mortgage in full for the month in which they took the survey (80.3% versus 63.5% of those who did not receive the EIP), and more likely to indicate that they would be able to pay their bills in full for the month in which they took the survey (69.5% versus 56.2% of those who did not receive the EIP). However, it is important to interpret this connection with caution. It is possible that those who were already better off financially (and, as such, more likely to be able to make their housing and bill payments in full in general) were more likely to access the EIP. In fact, as our previous analysis of the survey data showed, households in the lowest income brackets were less likely to access the EIP. 

Households that received the EIP were also less likely to rely on alternative financial services (AFS) credit products or credit cards. These alternative products can be a lifeline for managing vulnerable and volatile financial lives. However, some of these products (such as payday loans) are typically associated with high interest rates or offer predatory conditions and, therefore, might increase the financial vulnerability of these households in the medium to long run. 

It is important to keep in mind that at the time the EIP were dispensed, in the early months of the COVID health and economic crisis, some households might also have had other resources to draw on—such as savings or support from family members or friends. For example, almost 40 percent of the households surveyed stated using savings as a way to mitigate the effects of the crisis, Yet, as our findings suggest, many were still using the EIP for basic expenses. As this crisis continues, those strategies are more likely to be depleted, making another round of stimulus relief from the federal government even more crucial to support families in managing this crisis financially without having to turn to financial products that may leave them more financially vulnerable in the long run. 

Those households that did not receive the EIP have experienced the reverse of the above insights—they were more likely to experience a financial hardship, more likely to use alternative financial services products and credit cards to manage, and less likely to indicate being able to pay their housing and bill payments in full. Not surprisingly, well over half (67%) of those who did not receive the EIP indicated that receiving the EIP would be extremely important or very important for their household’s ability to manage financially. 

It is worth highlighting the importance of the data discussed in this blog post given its timeliness—especially, in light of the Census data being released today, which was collected in 2019, during a high point for the economy. The impact of COVID-19 has severely impacted the financial stability of the most vulnerable households in our society—i.e., those who were already poor or a paycheck away from poverty. 

The findings discussed in this piece point to the critical support the EIP appears to have had, and the need to ensure access to any future government financial relief for all lower-income households. Congress’ failure to pass another, more inclusive stimulus bill in the near future is likely to exacerbate financial hardship for the most vulnerable families in our country.