By Lacey Cobb
There’s no doubt that the pandemic has had a significant impact on people’s finances. Millions of people lost their jobs, forcing them to cut back on their spending.
For others, spending changes were less about job loss and more about restrictions around what they could spend their money on.
A recent Personal Capital survey examined spending during the pandemic. It looked closely at how people’s priorities changed throughout 2020 and early 2021. The survey also took a forward-looking approach to see how people’s financial habits are likely to change in a post-pandemic world.
How Cash Was Spent
Here’s how the pandemic impacted the way people spend money.
Anonymized data from Personal Capital’s free financial tools show that in the immediate aftermath of the pandemic, spending on travel was reduced by more than half — it went from more than $1,000/month per person pre-pandemic to roughly $400/month per person by late March. Similarly, monthly restaurant spending went from roughly $600 before the pandemic to less than $400 per person by late March.
Another memorable change in spending was people’s grocery budgets. Grocery spending spiked at the very start of the pandemic. It leveled off later, but still remained above pre-pandemic levels. In January 2020, per-person grocery spending was around $400/month. By March, it had exceeded $600 monthly. By early 2021, it still hovered around $500/month per person.
But what’s perhaps more interesting is the categories where people spent more. Spending on general merchandise from stores like Amazon, Costco, Walmart, and Target increased dramatically during the pandemic. There was a small spike in early 2020, followed by a small decline. But after the first stimulus check, it continued to increase steadily, nearly doubling its pre-pandemic levels by late 2020 and the holiday season. It has fallen significantly since the holidays, but remains higher than pre-pandemic levels.
Similarly, spending on home improvements has also remained steady with a slight increase. It has ebbed and flowed slightly, but hasn’t fallen below its pre-pandemic levels. And at the start of spring 2021, it was on the rise once again.
How People Changed Their Priorities
As a result of the pandemic, people’s priorities have changed. Some of those changes were out of necessity. For example, people spent less on travel and dining out partially because there were fewer opportunities to spend on those items. But while overall spending remained stable — or drastically increased, in the case of general merchandise — people still managed to save money.
Despite the widespread job loss throughout the pandemic, 69% of millennials survey respondents have saved more than $100 per month during the pandemic, and 20% have saved $500 or more.
In addition to having fewer opportunities to spend, it’s likely that nearly everyone knows someone who lost their job during the pandemic. Even if your job remained safe, it’s likely the pandemic was a wake-up call to the importance of saving.
And in a post-pandemic world, people may be more focused on saving. Rather than spending that extra savings they’ve built up during the pandemic, 51% of people plan to hold it in savings, while 30% (and 34% of millennials) plan to put it toward debt.
During the pandemic recovery, there will be price spikes and likely a longer-term trickle-down effect. What people can do to protect themselves is ensure they have adequate emergency savings, continue contributing to their retirement savings vehicles, and spend within their means.
How Stimulus Checks Affected Consumer Spending
There’s no doubt that spending decreased drastically when the pandemic began, especially in categories like travel and restaurants.
But there was also a noticeable increase in spending after each of the stimulus checks. Before the pandemic, the average person spent more than $1,000 on travel, according to the anonymized Personal Capital user data. But within the first month, that number was cut by more than half.
But after each of the first two stimulus checks, travel spending increased by more than $100 per person. Similarly, while per-person eating out spending has reached pre-pandemic levels, it made a noticeable comeback after the first two stimulus checks. The only category where individuals didn’t spend more after either stimulus check was groceries. In fact, per-person spending decreased in that category, following a drastic increase at the start of the pandemic.
At the time of Personal Capital’s data pull, it was too early to determine the impact the third stimulus check had on consumer spending. But categories like travel, eating out, home improvement, and general merchandise were all trending upward, so we’re likely to see that trend continue.
It’s also worth mentioning that the third stimulus check comes at a time when many people are receiving tax refunds, which may also have an impact on consumer spending.
Money Habits in a Post-Pandemic World
As many people’s lives begin to return to a semblance of normalcy, it stands to reason that people’s spending habits will also revert back. And in many ways, that’s true. Personal Capital’s survey showed that roughly 32% of people feel more optimistic about the economy. As that number increases, more families may start to loosen the purse springs.
Additionally, many people feel ready to start spending again. 83% of Americans have a specific post-pandemic purchase in mind, with popular wish list items including vacations, clothes, and live events.
And while spending may increase again after the pandemic, the numbers show us that many changes are here to stay. In fact, 80% of survey respondents shared that they plan to continue at least one budget change they made during the pandemic.
Popular changes plan to keep include eating out less, purchasing fewer clothes, and traveling less frequently.
But it’s also important to acknowledge that for many families, the light at the end of the tunnel hasn’t appeared yet. Millions of Americans are still out of work. Many more are coming out of the pandemic feeling behind in their finances. The Personal Capital survey showed that just 15% of people feel confident in their ability to save for retirement.
As people get back on their feet, two of the most important steps they’ll be taking is building their emergency funds and investing for retirement.
We typically recommend three to six months of expenses in cash, but there isn’t a magic number to hit, as that number is based on your needs.
And when it comes to investing for the future?
Start with your retirement accounts — a company 401k, a Roth IRA, a SEP IRA. Start early, save aggressively, and contribute as consistently as possible. What many don’t realize is that even the smallest changes can have a big impact down the road.
This content is for informational purposes only and does not constitute investment advice. In a separate referral arrangement between Personal Capital Corporation ("PCC") and Benzinga.com, Benzinga is paid between $70 and $150 for each person who uses Benzinga's webpage (www.Benzinga.com) to register with Personal Capital and links at least $100,000 in investable assets to Personal Capital's free financial dashboard. No fees or other amounts will be charged to investors by Benzinga or Personal Capital as a result of the referral arrangement. Investors that are referred to PCC and subsequently subscribe for investment advisory services provided by PCC's affiliated adviser, Personal Capital Advisors Corporation ("PCAC"), will not pay increased management fees or other similar compensation as a result of this arrangement.