Commentary Directory

Highlights of the Fed's "Economic Well-Being of U.S. Households in 2020" Report

Jacob Hess
May 24, 2021

The Fed recently released the results of one of its marquee surveys named "Economic Well-Being of US Households in 2020." The survey was conducted in mid to late November 2020 with over 18,000 individuals contacted to take the survey and a completion rate of 64.8%. This was the 8th year of the survey, conducted annually in the fourth quarter of each year since 2013. The results of the report provide an interesting look into the financial condition of the US population. This year's is especially interesting considering a pandemic had just ravaged the economy. Here are some highlights of how respondents described their current financial situation, income, and spending

Current Financial Situation

Recessions and economic shocks can be particularly damaging to an individual's economic well-being. One would expect the shock from the pandemic in 2020 to be especially damaging considering the unique circumstances. However, the very first glance suggests maybe not. At the end of 2020, 75% of respondents confirmed that they were "at least doing okay financially," unchanged from 2019. What's even more surprising is that the 75% also beats out the share "at least doing okay" in the years 2013-2017. There was some fluctuation within 2020 but not by much. In supplemental surveys, the April 2020 rate was 72% and the July 2020 was 77% both of which beat the years 2013-2016 and the latter being a series high.

What to make of this? More than anything, it suggests that the stimulus provided and the relief measures passed did enough to maintain at least a bare minimum of economic security during the pandemic which featured the highest level of unemployment ever. This and even the relatively high April number contradicts the sharp decline in consumer sentiment (down -28.9% from Feb 2020 to Apr 2020) and the stock market (the S&P 500 fell -16.7% from Feb 2020 to Apr 2020) which are notable sentiment indicators. A reason for this could be that respondents at the end of 2020 had hindsight bias. Looking back at one's initial financial condition at the onset of the pandemic has a different effect than assessing one's financial condition when uncertainty is at its highest.

The positivity about one's financial situation was stable across most demographics except for one. The cohort without any degree (no high school or college degree) saw a decline in "at least doing okay financially" from 54% in 2019 to 45% in 2020 (this was still above the cohort's positive response rate in 2014 of 42%). The only real decline was seen in less than a high school degree. This group is particularly sensitive in recessions. These workers have had significantly higher unemployment compared to the education level just above them, having just a high school degree, in both 2009 and 2020. Respondents with just a high school degree saw an increase in "at least doing okay financially" from 65% in 2019 to 67% in 2020 despite that group's unemployment up from 3.5% in Feb 2020 to 7.8% in Dec 2020.

Income and Spending

As mentioned before, the pandemic was closely related to a sharp increase in the unemployment rate from 3.5% in Feb 2020 to a peak of 14.8% in Apr 2020. From that, one would expect a significant decrease in households receiving income from wages, but data in the Fed's survey suggested otherwise. When asked to describe a respondent's family's sources of income (multiple income sources were allowed to be selected), 67% of respondents reported receiving "wages, salaries, or self-employment income" only a two percent decline from the 69% in 2019. One might expect a more significant increase in this answer in the context of a high unemployment rate that leads many individuals to report the need for unemployment insurance.

And many of those individuals received unemployment insurance. In the same question, 61% of respondents received non-labor income in 2020 well above the 54% who received it in 2019 driven by a 12% increase in the share of respondents who received unemployment income. It is very clear that the aim of policymakers was to get as much money in the hands of consumers as possible and not worry too much about direct stimulus efforts to the most impacted individuals. This frivolity is likely a consequence of the speed with which action was taken.

And in preventing uncertainty, these actions seem to have been effective. In a question asking respondents if their income was stable during the year, 71% of them responded affirmatively. This was the same as 2019 when there wasn't a global pandemic that forced individuals out of work. More importantly, only 11% reported volatility in income causing hardship. While families with less than $25,000 were most likely to report hardship from income volatility, a strong majority (58%) reported stable income and no hardships. The effect was largely different across industries, as one would expect with leisure and hospitality, construction, and natural resources/mining seeing the largest income volatility. However, a majority of workers in these industries still reported stable income month-to-month. Only 48% of respondents in the leisure and hospital industry reported volatile income despite the unemployment rate in that industry peaking just above 39%.

One possible explanation of the decrease in income volatility is an increase in income from "gigs" which typically increase with increases in unemployment. However, layoffs in 2020 were not paired with a significant rise in "gig activity," but in fact, it was the opposite. The Fed's survey found a -4% decrease in the share of respondents who earned money from gigs in 2020 compared to 2019. It also found that fewer people overall performed gig activities and even when they did, it accounted for less than half of an individual's total earnings. Based on these data points, it seems unlikely that the gig economy was a significant counter to the disruption in the traditional economy; instead, it seems that it saw its own disruptions from the pandemic.

Some interesting dynamics were also visible in monthly spending. Respondents who were more likely to report a drop in monthly income were also less likely to report a decrease in monthly spending. On the other hand, those who were more likely to report an increase in monthly income were more likely to report a decrease in monthly spending. The former trend was reported in cohorts with less education (Less than a high school degree) while the latter trend was reported in cohorts with more education (Bachelor's degree or more). It's a curious trend that is likely explained by how different groups used their stimulus checks. Specifically, it is consistent with a post from the Liberty Street Economics blog which pointed to higher income and more educated groups saving their first stimulus check more often and spending it on essentials less often than lower income and less educated groups.


The pandemic was a time of economic hardship for many, especially for groups of lower incomes. Despite these pockets of hardship, the overall economic well-being of US society seems to have held up in 2020 which contradicts trends in many economic indicators. Indeed, the economic indicator in 2020 seems to be the level of monetary and fiscal support which was highly effective in supporting households through unemployment and uncertainty. This will likely be one of many hindsight views of the pandemic that will paint this crisis as rosier than it seemed, and in the end, many may come to the conclusion that pure uncertainty was the most disruptive economic force for businesses and consumers. Pure uncertainty that was successfully combatted by the unwavering accommodative support from the Federal Reserve and unprecedented stimulus from Congress, both of which were shakier during the Great Recession following the financial crisis of 2008-2009.

The consequences of that unwavering support? That remains to be seen...