Even though jobs are plentiful and wages are up, many families still face a shaky economic outlook. Higher than average inflation, which tends to hit low- and middle-income families hardest, will likely persist in 2022. A rental crisis looms. Either could undo gains in financial well-being found at the end of 2021 by the Federal Reserve.
In addition, many of the new or expanded government benefits created during the pandemic now have expired, adding to the financial uncertainty of many households. Reviving the expanded child tax credit (CTC) would be one way to help families with children weather this uncertainty.
During the pandemic, most Americans received three rounds of Economic Impact Payments (EIPs) which started in April 2020 and ended in March 2021. From July to December 2021, the vast majority of families with children also received monthly payments of up to half their expected child tax credit (CTC), thanks to the American Rescue Plan (ARP) Congress passed last year. Many of those families otherwise would have waited until they filed their tax returns in the spring of 2022 before receiving their CTC payments in the form of refunds.
In addition, for 2021, the ARP also raised child credit amounts for single parents with incomes below about $150,000 and married couples with incomes below about $190,000. They saw their credits boosted from a maximum of $2,000 per child under age 17 to up to $3,000 for children ages 6 to 17 and $3,600 for children under age 6. Because the law also made the CTC fully refundable, the biggest beneficiaries of these changes were the lowest income families.
These payments likely put families in a better financial position at the end of 2021 compared to previous years. EIPs and CTC payments helped many families pay down debt and save. And, at the end of 2021, 68 percent of adults reported they could cover a $400 emergency expense using exclusively cash or its equivalent, according to the Federal Reserve’s Survey of Household Economics and Decision-making (SHED). That was up 7 percentage points from 2018, and up 18 percentage points since the Fed started collecting these data in 2013.
The SHED also showed that 78 percent of adults were doing OK financially or living comfortably in 2021, also up from previously reported rates. Low-income parents saw the largest gains in financial well-being.
It is not clear how those families are faring today. While millions of low- and moderate-income workers are back on the job, often at higher wages than before the pandemic, many remain out of the labor force. As the Federal Reserve raises interest rates to slow inflation, the jobs market may be cooling. And the EIPs and the expanded child credit have ended.
Most families probably picked up the second half of their CTC as well as other tax credits when they filed their tax returns earlier this year. And because those government payments made it possible for some to keep up with their bills in 2021, they might have saved some of the refunds they received in 2022. But higher prices probably have eaten up much of that saving, especially for low-income families.
Data from December 2020 to December 2021 showed families with children that received the monthly CTC payments experienced larger drops in food insecurity than those who did not, but food insecurity rates rose once the payments ended.
Extending the CTC now could help put families back on the path of financial security they were on at the end of 2021. Otherwise, families risk losing those gains, leaving them struggling to cope with an increasingly uncertain financial future.
