Due to stimulus payments and a period of decreased spending during the height of the 2020 pandemic, Bank of America Corp BAC revealed that only 12% of its customers have account inflows 85% or less of their outflows. If the economic slowdown continues to remain gradual, then Bank of America expects increased savings accounts to support consumers for longer.
This is because savings buffers such as stimulus payments and lockdowns allowed consumers to save more than normal during the pandemic.
What Happened: The median household savings for those earning $50,000 or less, saw the largest rise in deposits more than any other income demographic from 2020 to 2021, according to the Bank of America report. Over the pandemic, Generation Z saw deposits in its checking and savings accounts increase the most out of any age group, while older and younger millennials were tied with last.
Although the inflow-to-outflow rate has declined in 2022, it’s still above 100%, and is similar to the pre-COVID-19 pandemic level as of September 2022, according to the report.
As some media reports suggest, 60% of the population is living “paycheck to paycheck” due to pressures being consistent with these sorts of low inflow rates, Bank of America reported the proportion of people struggling to meet their outgoings with money coming in appears short of media estimates.
With very little evidence supporting more people living “paycheck to paycheck,” new data indicated that accumulated deposits are now being drawn on, particularly for lower-income households, although the savings buffers are a big help.
See Also: Fed Expects Inflation To Moderate — And Has This To Say On Economic Activity
Why It Matters: Bank of America’s wage proxy series, which is created using identified Automated Clearing House (ACH), revealed payroll payments in customer accounts increased by 5.5% per household in the year to September. In the same period, total card spending grew by 4.4% per household.
As consumers are plagued by rising inflation, the strong U.S. labor market is allowing consumers to keep up with spending without tapping into their savings accounts. If the labor market does cool off, consumers will have to once again access their buffers to support spending.
If consumers use their buffers correctly, they should be able to outperform a modest slowdown in the economy, but at some point, they may have to cut back on discretionary spending.
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