Socialist Distancing: During Pandemic, Blacks faced more financial emergencies w/fewer economic resources, resulting in a widening gap in economic opportunity btw Black and white households

Huge wealth disparities between Black and white households in America existed long before the COVID-19 pandemic and have continued during the crisis. Data show that during the pandemic, Black households faced more financial emergencies with fewer economic resources, resulting in a widening gap in economic opportunity between Black and white households.

A new report from The Center for American Progress stated, “The pandemic occurred against the backdrop of a massive Black-white wealth gap. Because households quickly needed to rely on their wealth when the pandemic hit in early 2020, the crisis also illustrated the importance of wealth for families’ financial security. Black households suffered more in the pandemic in large part because they needed more but had much less wealth than white households. Wealth, both as an emergency buffer and as a means to invest in people’s futures, became critically important.

Millions of households, especially African American and Latino households, faced unemployment and multiple health emergencies more or less from one day to the next. Yet many of these same households had few or no emergency savings to fall back on during this time. When people lost their jobs, many needed to rely on emergency savings, leaving them with less financial security as the pandemic unfolded. For example, in 2020, 46.7 percent of unemployed white households could not come up with $400 in an emergency, while 65.2 percent of unemployed Black households lacked access to $400 in such situations.5

Many more white than Black households could use their savings during the pandemic to fill any financial gaps left by job losses and/or higher health care costs. This disparate reliance on savings to pay for current expenses reflects the highly unequal distribution of emergency savings by race.6 After all, households that had no or few emergency savings could not use them to help pay their bills after a job loss. While 45.9 percent of white households that saw a drop in job-related income used their savings to pay for current expenses, only 30.6 percent of Black households did so. (see Figure 1) Similarly, more white households than Black households—28.5 percent versus 18.8 percent—used their savings when they were out of work due to health reasons. When households actually needed to rely on their savings, fewer Black households than white households had the opportunity to do so, even though many more Black households experienced layoffs and health emergencies during this time.

Even if they could not fall back on savings, Black households still needed to fill the gap in their finances left by job losses and higher health care costs. They often did so by borrowing more money.7 For example, 44.5 percent of white households that used savings to pay for expenses also borrowed on credit cards, and 16.1 percent borrowed from family and friends; this suggests that they did not have enough emergency savings. In comparison, many more Black households in this situation borrowed money, with 45.8 percent taking out loans and 28.5 percent borrowing from family and friends. Essentially, Black households substituted more debt for limited emergency savings, widening the wealth gap between typical Black and white families.

Even when Black households used their savings to pay for expenses, they were more likely to experience financial hardships amid the pandemic. This suggests that Black families’ savings were often not enough to allow them to handle the many job, child care, and health care challenges that arose during the pandemic. African Americans that used their savings to pay for current expenses were more likely than white households to sometimes or often not have enough food, to not be current on their rent or mortgage, and to have difficulties paying all of their bills. (see Figure 2) For instance, 64.1 percent of African Americans who used their savings to pay for expenses had trouble paying all of their bills, and the same was true for only 49.2 percent of white households. (see Figure 2) Having savings to pay for expenses during emergencies was clearly not enough to avoid economic hardships for all households, but the chance of still experiencing such hardships was much higher for Black households than for white ones.

Put differently, Americans generally have too few emergency savings, but this shortfall during the pandemic was much worse for Black households.

The bottom line is accessing savings to fill the gap left by too little income among widespread economic emergencies is not enough to avoid economic hardship and future hardship as debt grows, especially among Black households.

The pandemic laid the foundation for greater wealth inequality in the future

The racial wealth gap also manifests in disparities in long-term investments, and not just in differences in emergency savings and immediate financial insecurity; during the pandemic, Black households had less wealth and thus fewer opportunities to invest in education, homeownership, and business stability or to choose to retire amid a worsening labor market. Yet the pandemic was a time when families often needed to spend more money on education—for example, to support their children’s remote schooling or to pursue postsecondary education to boost their own earning potential in the face of a highly uncertain future in the labor market.

During this time, many households also sought housing stability and explored new housing options to protect their health and that of their families. Moreover, many household members who owned their own business needed to access savings to keep their business running as they either were forced to shut down or saw demand for their goods and services drop amid customers’ health concerns. Inevitably, the labor market quickly worsened, often pushing older Black workers in particular out onto the unemployment line.

While Black families often had greater needs to invest in education, housing, and businesses or to move into retirement, they had fewer resources to do so at the start of the pandemic. The result has been widening gaps in key long-term investments—such as education, housing, business ownership, and retirement—between Black and white households. [MORE]