MCLEAN, Va., March 7, 2022 — Timed to the two-year anniversary of the COVID-19 pandemic, the Capital One Insights Center has released new research that shows the gap between lower and higher earners continues to widen against new affordability pressures.
As part of the Center’s ongoing Marketplace Index survey, this latest release dives into the disproportionate impact of the pandemic across income groups against the backdrop of rising inflation.
The Marketplace Index is one of the longest-running surveys on the social and economic effects of COVID-19 to date by a private sector enterprise, having run surveys of 2,000-10,000 Americans every four to eight weeks since April 2020. Ahead of the forthcoming Federal Reserve’s interest rate decision (3/15), the study addresses consumer sentiment on topics impacting Americans’ financial health today.
“Americans believe their financial health has declined to levels not seen since early in the pandemic,” says Melissa Bearden, Head of Consumer Intelligence at Capital One. “For those earning the least, the last two years of uncertainty and rapid change are creating worrisome financial realities. Coupled with the current backdrop of rising inflation, bill payment rates continue to decrease across all income levels and many consumers say that they are struggling to cover the cost of household staples.”
Key study findings include:
Two years into the pandemic, the K-shaped recovery continues, with the gap between lower and higher earners continuing to widen against the backdrop of inflation. Since the Marketplace Index’s first release six months ago, Americans have confronted a host of new challenges – from the surge of the Omicron variant, to the expiration of key government relief programs and stimulus, and now rising inflation. This has placed increased pressure on the financial health of millions of Americans, with lower earners facing disproportionately negative impacts. Comparing the early months of the pandemic to February 2022, data shows that: Underemployment: Underemployment—working less than preferred or for less money than before the pandemic—has shown a marked improvement compared to April 2020, however lower earners have not recovered at the same rate.
For middle earners rates of underemployment dropped by 14 percentage points (21% in April 2020 vs 7% in February 2022), by 10 points for higher earners (13% vs. 3%), and just four points for lower earners (Nat Rep: 22% vs. 18%). Income: While fewer middle and higher earners have reported a decrease in income since April 2020, a slightly greater share of lower earners have reported additional decreases (33% in April 2020 vs. 35% in February 2022). Bill payments: Since August 2021, there has been a slight increase in Americans who were unable to pay some or all of their bills in the past month across all income groups (Nat Rep: 11% in August 2021 vs. 13% in February 2022), with lower earners struggling the most (20% vs. 22%). Financial health sentiment: Americans’ sense of their current financial health has fallen to early pandemic lows across income groups, driven largely by falling sentiment among lower earners (42% of lower earners reported that they do not feel financially healthy in April 2020 vs 47% in February 2022).
Lower earners continue to face outsized economic hurdles, impacting not only their financial—but physical, mental and emotional health—at roughly two times the rate of higher earners. Nearly half of lower earners (47%) say their current financial situation impacts their mental and emotional health negatively, and 39% report negative impacts to their physical health – at nearly 2x the rate of higher earners. Against the backdrop of rising prices, roughly one-in-four Americans were unable to pay for at least one bill in the past month. In February 2022, roughly one quarter of consumers (26%) were unable to pay at least one bill while 27% borrowed in some way to pay bills or make ends meet. Nearly half (47%) are concerned about paying at least one bill in the next month. As concerns over inflation increase, about six-in-ten Americans report that rising prices have affected their spending, leading to cuts in discretionary purchases.
The majority of respondents (62%) reported that inflation affected their spending recently, with lower and middle earners most affected. As a result, more than one-third of lower earners are making significant cuts to their travel, entertainment and dining spend (ranging from 33-37% across the aforementioned categories) compared to much lower rates among higher earners (9-17%). The vast majority of Americans don’t think wages have kept up with inflation, with lower earners falling furthest behind in non-performance based increases. Only 18% of consumers say their wages have fully kept up with their cost of living, with only 9% of lower earners reporting the same. Meanwhile, 10% of lower earners got a non-performance based raise or bonus in the past 3 months, vs. 20% of middle earners and 30% of higher earners; these disparate impacts are even more pronounced when considering the already pronounced difference in wages across all three income groups.
To compensate for rising prices, some Americans are turning to other funding sources, like savings or borrowing. Nearly half of consumers (45%) took proactive measures to spend less (e.g. cutting back on discretionary spending and canceling/not taking trips), and more than half (58%) took a hit to their longer-term financial health (e.g. saving less, tapping into savings, borrowing money, taking out a loan). Tax refunds are expected to be a boost for considerable shares of Americans. Nearly half (47%) of respondents expect a refund after filing their 2021 taxes, with nearly half of lower earners (43%) and three-in-ten middle earners (30%) saying their tax refunds would be very or moderately important to their overall financial health this year. Working Americans across the earnings spectrum report increasing income.
In the month of February, more working Americans reported their income increasing (43%) than those who reported a decrease in income (27%), largely from year end bonuses (10%) and merit-based raises from their same job (14%) and/or from working more hours (18%). Despite increasing concerns over affordability among middle and higher earners, there is considerable hope for their financial future: Middle and higher earners express hope for their financial futures: 31% of middle earners and 45% of higher earners are more optimistic about their financial futures than they were pre-pandemic; and 77% of higher earners and 48% of middle earners report feeling confident about saving for their long-term goals. A smaller share of lower earners express a similarly positive view (27%).
Upcoming Reports
Additional findings from the first Capital One Marketplace Index: Two-Year Retrospective survey can be found here. New data will be published over the next six weeks; and will explore similar topics from a gender and race perspective, the Great Resignation and potential impacts of delayed tax refunds.
The Capital One Insights Center combines Capital One research and partnerships to produce insights that advance equity and inclusion. As a nascent platform for data and dialogue, the Center strives to help changemakers create an inclusive society, build thriving communities and develop financial tools that enrich lives. The Center draws on Capital One’s deep market expertise and legacy of revolutionizing the credit system through the application of data, information and technology.
About Capital One
Capital One Financial Corporation is headquartered in McLean, Virginia. Its subsidiaries, Capital One, N.A. and Capital One Bank (USA), N. A., offer a broad spectrum of financial products and services to consumers, small businesses and commercial clients. We apply the same principles of innovation, collaboration and empowerment in our commitment to our communities across the country that we do in our business. We recognize that helping to build strong and healthy communities – good places to work, good places to do business and good places to raise families – benefits us all and we are proud to support this and other community initiatives.
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