Americans' $2 Trillion in Pandemic Savings Nearly Exhausted

American consumers' savings cushion is no longer that cushiony, according to new Federal Reserve research.

The savings people accumulated during the pandemic, which at one point topped $2 trillion, are due to run out this quarter, the Federal Reserve Bank of San Francisco said in a study released Wednesday (Aug. 16). 

“Our updated estimates suggest that households held less than $190 billion of aggregate excess savings by June,” Hamza Abdelrahman and Luiz Oliveira, researchers for the bank, wrote in a blog entry.

“There is considerable uncertainty in the outlook,” they continued, “but we estimate that these excess savings are likely to be depleted during the third quarter of 2023.”

As to that uncertainty, the researchers point to other estimates arguing that a much smaller share of savings has been spent, but that those funds “will not be a major driver of spending growth going forward primarily because of the front-loaded dynamics of spending responses to changes in income and wealth,” Abdelrahman and Oliveira wrote.

PYMNTS has also noted that those savings weren't proportionately distributed, with households in the top half of the income bracket holding three-quarters of that money.

As covered here in May, 27% of households say they've used their savings to cover credit card debt alone, while a record number of 401(k) plan holders dipped into those accounts to cover costs last year.

“More recently, savings don’t even cover credit card debts for many paycheck-to-paycheck consumers, as those with issues paying their bills carry average balances comprising 157% of their available savings,” PYMNTS wrote.

It's a situation that hasn't improved in the intervening months. Upwards of 60% of Americans lived paycheck to paycheck as of June, a trend that Amber Carroll, senior vice president of membership and lifecycle strategy at LendingClub, said will stick around.

“The paycheck-to-paycheck lifestyle is beginning to be the norm,” Carroll told PYMNTS in an interview last week, citing data from an ongoing PYMNTS series that shows that even high-income households with more $100,000 in earnings are struggling with inflation.

This harsh economic climate has led to a decline in consumer purchasing power across income brackets, with more households opting to spend more on essentials than on non-essential goods. Caroll said it’s a choice that does little to improve their savings.

“Consumers are adjusting their spending behaviors, but this is allowing them to tread water, not get ahead,” she said.

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