Wealth in America grew at a rapid pace during the pandemic, despite the economic downturn.
But most of the gains went to the highest income brackets, exacerbating income inequality.
U.S. household net worth increased by $19 trillion (16%) from the end of 2019 to the first quarter of 2021, according to an analysis by Oxford Economics. But the increase was uneven: The top 1% saw their wealth increase by 23% while the bottom quintile of households increased their net worth by only 2.5%.
“During the pandemic, upper-income households have fared quite well,” Nancy Vanden Houten, lead economist at Oxford Economics, told Yahoo Money. “Those at the very bottom have treaded water here.”
The largest 15-month wealth boost since 2004 was driven by rising stock, real estate, and mutual funds prices. The majority of the gains in net worth reflect price appreciation of those assets rather than new investments, meaning those owning assets before the pandemic benefited the most from the gains.
After an initial dip for the top 20% of households in the first quarter of 2020, their wealth steadily increased while for those at the bottom, it only ticked up.
“The top 20% of households tend to hold more of the assets that appreciated in value,” Vanden Houten said. “The share of wealth held by the top 1% continues to climb while those at the lower end lost ground … by that measure, inequality worsened.”
‘Saved less than they would have’
The rapid increase in wealth was also driven by a significant increase in liquid savings which rose $3.7 trillion during the pandemic, the analysis found.
The personal savings rate reached a historic high of 33.7% in April 2020 and remains elevated above its pre-pandemic levels at 12.4% in May 2021, according to the Bureau of Economic Analysis.
Those gains in savings were unevenly distributed as well.
The top 20% accounted for 70% of the gain in liquid savings, according to the analysis. At the same time, the bottom quintile of households actually saved less than implied by their pre-pandemic behavior.
“The upper-income households also saw the biggest increase in these liquid savings accounts,” Vanden Houten said. “For the bottom 20%, it almost seems like those households saved less than they would have if it continued at the pace of savings prior to the pandemic.”
‘An indication of some difficulty ahead’
Not only did the bottom quintile see a decrease in savings and relatively small gains in net worth, they also saw a bigger increase in liability levels than higher-income households.
Overall, liabilities increased modestly — by 5% — during the pandemic but the increase was more pronounced for those at the bottom of the income ladder.
All income quintiles except for the bottom one saw declines in their consumer credit during the pandemic.
Additionally, outstanding mortgage debt rose by 12% for the bottom quintile, likely due to the growing balance of those households that opted for mortgage forbearance during the pandemic. The rest of the households saw less than a 6% increase in mortgage debt.
“Mortgage debt increased for all categories, and the increase for the lowest income group was kind of striking,” Vanden Houten said. “That could be an indication of some difficulty ahead when forbearance programs expire.”