Board of Governors of the Federal Reserve System

Income

The COVID-19 pandemic and subsequent recession caused many workers to lose their jobs in 2020. Yet, relief measures in the form of stimulus payments and additional unemployment insurance payments helped alleviate financial challenges.

To capture the extent that people could cover their monthly expenses without incurring debt, the survey asked a series of questions related to income level and sources, income volatility, and spending. Most adults spent less than their income during the month before the survey, although a considerable minority had monthly spending that exceeded their income. Additionally, individuals who were laid off during the previous year were more likely to report economic hardship as a result of income that varies from one month to the next.

Level and Source

Family income in this survey is the cash income from all sources that the respondents and their spouse or partner received during the previous year.¹⁷ Just under 3 in 10 adults had a family income below $25,000 in 2020, and 45 percent had less than $50,000 (table 3).

Table 3. Family income (by race/ethnicity)

Family income varied dramatically by demographic characteristics, including race and ethnicity. Forty-one percent of Black adults and 42 percent of Hispanic adults had a family income below $25,000. Conversely, White and Asian adults were disproportionately likely to have family income above $100,000.

Respondents were also asked about the sources of income that they and their spouse or partner received. Wages, salaries, and self-employment (collectively referred to here as labor income) was the most common source of income in 2020: 67 percent of adults and their spouse or partner received labor income (figure 6). Yet, 61 percent of adults and their spouse or partner also received non-labor income in 2020, up from 54 percent in 2019.¹⁸ This increase was driven by a sharp rise in the number of adults receiving unemployment income. Fourteen percent of adults received unemployment income in 2020, up from 2 percent in 2019.

Assistance from nonprofits and private sources—including financial support from a friend of family member living outside of their home—also played a role. Sixteen percent of adults ages 21 and older received at least one type of assistance from private or nonprofit sources in 2020 (table 4). Nearly 1 in 10 adults received financial assistance from a friend or family member living outside of their home, essentially unchanged from 2019. More than 1 in 10 adults received groceries or meals from a food pantry, religious organization, or community organization in 2020.

Table 4. Providing and receiving support (by education)

Adults with less education were more likely to receive at least one type of assistance from private or nonprofit sources: more than one-third of adults with less than a high school degree received assistance from private or nonprofit sources, compared to less than 1 in 10 adults with at least a bachelor's degree.

Additionally, 17 percent of adults provided financial support to others. Those with more education were more likely to provide financial support: one in five adults with at least a bachelor's degree provided financial support to someone outside the home in 2020.

Changes in Spending and Income

Many families saw their financial circumstances change in 2020. Twenty-four percent of people saw their income increase in 2020, compared with 19 percent whose income declined. This slight improvement was largely driven by those with higher levels of education.

Adults with less education were more likely to have experienced income declines. Among adults with less than a high school degree, 23 percent had income that declined (figure 7). This exceeded the 17 percent of those with at least a bachelor's degree who experienced an income decline. Among adults who experienced a layoff during the previous year, nearly one-half also saw their total monthly income decline relative to a year earlier.

By contrast, those with more education were the most likely to have reduced their total monthly spending. Fewer than 2 in 10 adults with a high school degree or less had lower monthly spending compared to a year ago. However, 27 percent of adults with at least a bachelor's degree decreased their spending. Changes in spending are also related to employment disruptions, as just over one-third of adults who were laid off also spent less compared to a year earlier.

Consistent with these trends, adults with more education also were more likely to have increased the amount in their checking or savings account. Among adults with at least a bachelor's degree, nearly 3 in 10 experienced an increase in their usual bank account balance after paying their bills compared to a year earlier, exceeding the 16 percent who saw a decline. Among adults with less than a high school degree, this pattern is reversed, as 6 percent said their usual account balance increased, whereas 25 percent said it declined.

When asked to compare spending and income levels during the previous month, 55 percent of adults spent less than they made—a 3 percentage point increase from 2019. Nearly 3 in 10 adults had spending equal to their income. The remaining 16 percent of adults spent more than their income.

While the majority of adults spent less than they made during the previous month, this share varies by whether or not the person experienced a layoff and lives in a LMI neighborhood (table 5). One in four adults who experienced a layoff, and more than one in five adults living in LMI neighborhoods, had spending that exceeded their income.

Table 5. Spending relative to income (by employment, education, and neighborhood income)

Individuals with less education also were more likely to say they spent more than their income. The share of adults who spent less than their income increased among those with more education. In fact, those with at least a bachelor's degree were 30 percentage points more likely to have spent less than their income than adults with less than a high school degree.

Income Volatility

Some people have income that varies through the year. Since many bills have to be paid monthly, variations in income can lead to financial challenges. The survey asked respondents about the consistency in their monthly income, and whether income volatility led to financial challenges.

Despite the disruptions caused by the pandemic, more than 7 in 10 adults had income that was roughly the same each month, matching the rate from 2019. Since income volatility can result from either dips or spikes in monthly income, the survey then assessed the relationship between income volatility and economic hardship. It did so by asking those who reported varying income whether they struggled to pay bills as a result. More than one-third (37 percent) of those who experienced income volatility, representing slightly more than 1 in 10 adults overall, said they struggled to pay their bills at least once in the past 12 months due to varying income.

Those who experienced a layoff during the previous year, and those with lower income, were more likely to both have income volatility and report related hardship (table 6). In fact, nearly 3 in 10 adults who experienced a layoff in 2020 struggled to pay bills at least once in the past year because of variability in their income. Similarly, 2 in 10 adults with a family income below $25,000 reported hardship caused by varying income.

Table 6. Income volatility and related hardship (by layoff in prior 12 months and family income)

Income volatility also continued to vary greatly by industry in 2020, with workers in the leisure and hospitality industry having the most unstable income (figure 8). Leisure and hospitality workers also reported the largest rates of hardship from income volatility. Although leisure and hospitality workers experienced substantial job losses from COVID-19, volatile income within this industry predated the pandemic. The high rates of income volatility within this industry were similar to those observed in 2019, even though a disproportionately large share of leisure and hospitality workers also saw their income decrease in the past year.

 

References

 

 17. Income is reported in dollar ranges rather than exact amounts. Previous reports on the SHED discussed the financial well-being of individuals making less than $40,000 per year. This threshold was set because in 2013 when the survey began, $40,000 was approximately 80 percent of the U.S. median household income of $51,939. In 2019, the median household income was $68,703. To reflect the rise in median income, this report now focuses on individuals making less than $50,000 per year—but where possible also separates out those making less than $25,000. For additional details on U.S. median household incomes, see Jessica Semega, Melissa, Kollar, Emily A. Shrider, and John F. Cremer, Income and Poverty in the United States: 2019 (Washington: U.S. Census Bureau, September 2020). Return to text

 18. Non-labor income is defined as income from interest, dividends, or rental income; social security (including old age and Disabled Individual (DI); Supplemental Security Income (SSI), Temporary Assistance for Needy Families (TANF), or cash assistance from a welfare program; unemployment income; or income from a pension. Non-labor income does not include Economic Impact Payments, tax credits such as the Earned Income Tax Credit, or in-kind benefits. Return to text