The pandemic giveth, and the pandemic taketh away. In a tale of two financial realities, the liquid wealth accumulated by households during the height of the COVID-19 crisis has all but disappeared — but not equally across income groups. A new study by the Federal Reserve Bank of San Francisco reveals a stark divide in the fortunes of the haves and have-nots.

A rising tide lifts some boats: In the early days of the pandemic, households across the income spectrum saw their liquid assets — cash, checking and savings deposits, and money market funds — swell to levels far exceeding pre-pandemic projections. But the tide has since receded, leaving middle- and lower-income households high and dry.

• At the peak in early 2021, the top 20% of households by income had accumulated an extra $1.1T, or 11%, in liquid assets compared to pre-pandemic expectations.
• Meanwhile, the bottom 80% of households saw their pandemic-era liquid wealth peak at a more modest $270B, or 6%, above projected levels.

The Wealth Gap Widens

As the pandemic-era gains evaporated, the divergence between income groups became more pronounced. Middle- and lower-income households burned through their extra savings by late 2021, while higher-income households maintained their elevated liquid asset levels until mid-2022. The latest data paints a stark picture of the wealth divide.

• As of Q1 2024, the liquid wealth of the top 20% of households sits just 2% below pre-pandemic projections.
• In contrast, the bottom 80% of households now hold 13% less liquid wealth than expected based on pre-pandemic trends.

Money moves: One factor contributing to the widening wealth gap is the behavior of money market funds. As interest rates rose in 2022, higher-income households shifted more of their assets into these vehicles, chasing higher yields. This strategy has helped the wealthy maintain their pandemic-era gains, while middle- and lower-income households continue to struggle.

The depletion of liquid wealth has coincided with a rise in credit card delinquencies, particularly among middle- and lower-income borrowers. As households exhaust their financial cushions, they increasingly rely on credit to make ends meet — a trend that could have long-lasting implications for economic inequality and consumer financial health. The pandemic may be receding, but its impact on household wealth will be felt for years to come.