The Financial Impact of COVID-19 on the Average American Family
As the number of new coronavirus cases continues to climb exponentially, the International Monetary Fund is predicting a global recession as a result, one that will be at least as severe as the Great Recession of 2007. And most Americans are ill-prepared for what’s to come. Many are more concerned about the financial effects of the coronavirus than the health risks, even as the death toll continues to surge into the thousands.
The financial state of the average U.S. adult is already incredibly fragile. Most Americans are living paycheck to paycheck, and 39 percent wouldn’t be able to weather a $400 emergency expense without borrowing money or selling items, according to the Federal Reserve. Without an emergency fund to fall back on, many Americans will be desperate for cash in the coming weeks. And while the federal government is rushing to provide relief, it may not be sufficient for the average worker.
Though TransUnion found that over half of U.S. adults have already experienced a loss of income as a result of the pandemic, investors are optimistic that the Senate’s $2 trillion government aid package will prevent a repeat of the Great Depression. The legislation provides for direct payments in the amount of $1,200 to each American earning up to $75,000 annually. Workers who earned between $75,000 and $99,000 in 2018 will receive a lesser amount, while those with incomes above $99.000 won’t receive a check. Families will also receive $500 per child.
The new aid package also significantly expands unemployment benefits. For the first time, gig workers, freelancers, and furloughed employees will be eligible to receive aid. Jobless insurance will be extended to 13 weeks, and Americans who qualify will get an extra $600 per week for four months. That’s in addition to existing unemployment benefits; current maximum weekly payouts range from $235 to $823, depending on the state.
The Department of Education also announced some relief for student loan borrowers. Interest rates will fall to 0% for 60 days, and borrowers can request to have their payments suspended for two months. Those who are still earning income and can afford to make payments should take advantage of the 0% interest rate, while borrowers who are struggling financially as a result of the coronavirus should call their loan servicers.
Protecting Yourself Financially
If you’re still earning income but you don’t yet have an emergency fund, now would be a good time to establish a budgeting and savings plan. If you’ve lost your job or are struggling to make ends meet, there are several steps you can take to avoid financial ruin.
- Apply for assistance. Find out if you’re eligible and apply for unemployment benefits. If you can, opt to continue your employer’s health insurance benefits through COBRA. If you’re uninsured, you should sign up for coverage through the online marketplace. If you’re already broke and struggling to put food on the table, seek help from local community programs, such as food pantries. Many utility, phone, and internet companies are offering relief to customers during the pandemic. The Department of Housing and Urban Development has suspended foreclosures and evictions for homeowners, and some cities and states are providing relief for renters. Research what’s available in your area.
- Contact your creditors. Financial regulators are encouraging financial institutions to accommodate customers’ needs during this dire situation. If you can’t pay your bills, contact your lenders right away and explain your financial hardship. You may be able to get a payment extension.
- Consider a loan. If you need money right away, look for the loan product with the lowest possible interest rate that you qualify for. You may be able to borrow against your retirement plan or the equity you’ve built in your home. Just be sure to avoid payday loans, since these need to be repaid quickly and come with sky-high interest rates that can make your financial situation worse.
- Avoid scams. Regulators usually see an uptick in scams surrounding national disasters and emergencies. Some fraudsters are selling phony coronavirus products. Some have set up fake charities. Others are impersonating experts from the Center for Disease Control to defraud consumers. Follow these tips from the Federal Trade Commission to ensure you don’t fall victim to a scam that could further hurt your finances.
We’re just starting to see the economic impact of the coronavirus on American families, and the situation is going to get worse before it gets better. Remember to practice healthy financial habits, take steps to reduce your stress levels, and stay home if you are able.