The global pandemic has created undue hardship for households around the world. With businesses being forced to close and people finding their sense of job security gone, it’s no surprise that people are facing devastating financial distress.
Here are some of the effects of the coronavirus on household finances and financial distress.
One of the most significant impacts on the modern household has been the loss of income. Many dual-income households have been forced to adapt to a single income or none at all. Meanwhile, many single parents have directly lost their income or have been unable to work due to a lack of childcare.
The U.S. Bureau of Labor Statistics reported that 20.5 million people lost their jobs in April 2020. 16.9 million people remained unemployed in July, with 57% unable to return to work as their employer had gone under due to the pandemic.
Rising Utility Usage Bills
As a result of the coronavirus, utility bills are on the rise. This impact has left struggling businesses looking for the lowest commercial electricity rates possible, and households experiencing shock when they receive their bills. With people being pushed into a lockdown scenario and being at home more throughout the day, usage is up.
Unfortunately, many utility providers have also had to push their prices higher to make up for the increased demand. Many households— which are already experiencing decreased income— feel as though the rate increase is rubbing salt in the wound. It’s expected that rates will continue to rise as utility providers try to recuperate funds lost from deferrals.
Increased Grocery Costs
Another significant challenge during the height of the pandemic was the dramatic increase in grocery costs. Some of this increase was simple economics in supply and demand (toilet paper is a prime example here). The other factor was the disrupted supply chain, limiting options for economical transportation. Some product costs shot up as much as 10%.
During this time, many producers were cutting back on promotional activity. Fortunately, marketing efforts are starting to ramp up again, but it’s unlikely that food prices will drop anytime soon.
Deferrals and Interest Rates
Fortunately, many service providers offered payment deferrals on car loans, credit card payments, and even mortgages. While this was necessary for many families to get through the pandemic, these options are dwindling for those who are still unemployed.
Furthermore, those who took advantage of the deferrals are subject to payback plans and could potentially pay more interest on their loans. Additionally, assets like vehicles with depreciating value will have households paying for longer with less value at the end of their loan.
Impacts on Debt
Consumer debt was already a concern before the coronavirus took hold. For many people, relying on credit was the only way to pay bills, buy groceries, and stay alive.
Shockingly, however, the impact on consumer debt has largely been positive. With fewer options for spending disposable income and the option to defer payments, many households could pay down outstanding debts. The coronavirus lockdown has also highlighted the importance of financial literacy and having a positive money mindset, creating a paradigm shift in how people spend and save.
It should be interesting to see how this trend is impacted by entertainment establishments reopening and the end of stimulus packages.
Impact on Investments
Another financial hardship many people are facing as a result of the coronavirus is a steep decline in their investments. For people approaching retirement age, this financial impact is particularly jarring. While investments tend to be a long game and will recover with time, it could be years before the markets recover. While many households are facing financial hardships and a negative impact on income, this experience could revolutionize how people handle their money.