How unequal was the increase in wealth and savings in times of COVID

Household savings increased dramatically during the COVID-19 crisis in many countries. Lower consumption, both as a result of lockdowns and as a precaution, combined with an increase in disposable income from government transfers allowed households to put more money into their bank accounts, buy stocks, a house, or pay off their debt.

Along with saving, rising stock and house prices also made some households much wealthier.

In a blog post from IMF, an analysis of data from the United States as part of its recent External Sector Report found that most of the increase in savings and wealth occurred at the top of the wealth distribution.

In fact, while recent research has documented that household saving has historically been very unevenly distributed in the United States, very little is known about how the increase in savings or wealth has been distributed since the beginning of the pandemic.

The IMF chart, based on data released by the Federal Reserve, attempts to answer this by plotting changes in household net wealth by percentile (expressed as a proportion of total national disposable income) during the pandemic and over a period of time. period of time before the pandemic which the IMF refers to as “normal times”.

“What we find is that the net wealth of the richest 1% of households increased by almost 35 percentage points of the economy’s disposable income compared to a modest 5 percentage point increase for households in the bottom 50%.”Explained the IMF.

The graph (see below) reveals four key points:

1. The overall increase in net wealth, as a percentage of disposable income, was considerably higher during the pandemic (late 2019 through the second quarter of 2021) than in normal times (late 2014 through late 2019).
2. It was driven primarily by valuation changes (due to booming equity and house prices) and, to some extent, by the “surge in COVID-related savings” (with an increase in “other assets,” including bank deposits).
3. This overall increase in net wealth was also unevenly distributed, with much of it accumulating among the people at the top of the distribution. In fact, the stock price boom primarily benefited the wealthy, while lockdowns hit more on spending on food and travel, which make up an important part of the spending habits of wealthier households. Additionally, government support, in the form of direct stimulus or business support, also benefited wealthier households’ savings compared to poorer households that were more likely to spend the extra money.
4. At the same time, the distribution of wealth between the groups did not change much, as increases in net wealth were relatively in line with pre-pandemic shares in wealth distribution.