Americans' post-COVID financial recalibration

Americans' bank account balances have been falling for more than two years. That means we've lost some — not all — of our pandemic-induced proclivity to sit on a fat buffer of cash savings in case disaster strikes again.

Why it matters: There's still a broad temptation to compare the current world to the pre-pandemic normal — but, more than three years after the traumatic 2020 recession, people are increasingly getting used to something different.

The big picture: The pandemic ushered in a "new not normal" of greater volatility and therefore a greater need for a cash buffer in the almost certain event that something unexpected will happen.

• Cash has also become an attractive asset class for the first time in over 15 years, thanks to rising interest rates.

Between the lines: The JPMorgan Chase Institute has found that households tend to gravitate toward having a certain "cash buffer."

• That buffer — the amount of cash they have in their checking and savings accounts, measured in terms of how many days of spending it would take to deplete it — stayed largely constant from 2008 to 2019. Then, after the pandemic hit, it surged.
• The increase in cash triggered an increase in spending, and a consequent decline in balances. But as the balances have fallen, the decline has decelerated, and cash balance seems to be settling in at a significantly higher level than was normal pre-pandemic.
• Notably, these numbers do not include excess cash held outside Chase, in higher-yielding places like money-market funds. As such, the data probably understates the degree to which we're more cash-rich than we were pre-pandemic.

The bottom line: When we look at our bank balance, we feel that it's high or low by comparing it to what we're used to.

• While it might well be higher than it was in 2019, those years are increasingly distant.
• By more recent standards, our checking accounts can look quite thin. But our memories of 2020 and 2021 are of very unusual times. The fact that we're settling down into a new equilibrium is ultimately positive.