Wealth soars for bottom half of households, but inflation looms
The bottom half of American households — ranked by total net worth — have more than doubled their cash savings during the pandemic, though inflation threatens to claw back some of their financial gains.
Why it matters: The wealth gap and income inequality have been worsening in recent decades, undermining the working class.
The big picture: Economic stimulus efforts — namely the thousands of dollars in checks sent to Americans during the first year of the pandemic — have bolstered the bank accounts of average folks, while the booming housing market has also added to their net worth.
- The bottom half held 2.6% of Americans’ net worth in the fourth quarter of 2021, up from 1.8% in the first quarter of 2020, according to the Fed.
- The same families had $242.9 billion in cash as of the third quarter of 2021 (the latest period for that data) — their most ever and up from $110.4 billion in the first quarter of 2020.
What they’re saying: “For the first time since the late 1990s, low-wage workers are gaining ground compared to other workers,” Columbia University economics professor Suresh Naidu told Bloomberg, which first reported the development today.
Yes, but: A couple of years of gains doesn't reverse decades of inequality. In 2018, the top 1% of Americans took in 16.4% of household income, up from 8.9% in 1979, according to a report published May 24 by the Economic Policy Institute.
- Critics say that a sudden influx in cash can’t make up for structural policies that continue to prevent low-income Americans from getting ahead.
What we're watching: Whether inflation eats away at the gains many people have made. Prices have soared in the months since the Fed reported those economic advancements, forcing many lower-income Americans to rethink their finances.
- "Without policy changes, inequality will likely drag on household spending, further slowing overall economic growth in the future as well,” EPI report authors Josh Bivens and Asha Banerjee wrote.