RESEARCH Household Pulse: Balances through October 2023

The growth of household balances since 2019 appears much rosier when not adjusted for the 40-year record-high inflation in 2021 and 2022.³ To address inflation and an associated decrease in the purchasing power of households’ cash reserve, we began reporting on real cash balances rather than nominal cash balances in the last release of the Pulse. We compute real cash balances by deflating nominal cash balances by the Consumer Price Index (CPI), with January 2019 as our reference point.⁴ Reporting real balances allows for greater comparability of the purchasing power of balances over time.⁵

Looking at relative balances—percent change in monthly median balance relative to the same month in each sample’s reference year—Figure 1 shows that real balances diverged from nominal balances in the spring of 2021, and that the gap widened more rapidly through 2022 and into 2023. By the time relative balances levelled off in the second quarter of 2023, growth in real balances relative to 2019 was around 20 percentage points lower than nominal balances. Accounting for recent changes in the purchasing power of each dollar shows recent cash reserves are much closer to pre-pandemic reserves than nominal bank balances would suggest. This is in line with consumer sentiment, which indicates recent anxiety related to personal finances coming back into alignment with pre-pandemic sentiments after a period of higher confidence in recent years, even though the median nominal balance is still up 35 percent.⁶

Figure 1

In the second and third quarters of 2023, monthly balances continued to decline for high-income households, but leveled off for low-income households (Figure 2).⁷ In October 2023, households in the highest income quartile had median balances around $7,700, down from $8,900 in January. In contrast, balances have been relatively steady for households in the lowest income quartile: around $1,100 in both October and January 2023.

Figure 3 shows the change in median monthly balances compared to the same months in 2019. In the previous Pulse release with data through the end of March 2023, the distribution of relative balances had converged to similar levels across all income quartiles. With additional data from April through October, a new pattern emerged: relative balances continued to decline for high-income households but leveled off or slightly increased for low-income households, with October 2023 balances elevated between 5 and 15 percent relative to 2019. 

The decline in balances for high-income households could reflect the lower share of liquid wealth they hold in checking and savings accounts. Higher rates on interest-bearing accounts and assets could lead to elevated transfers out of the household checking and savings accounts for more financially savvy households. Post-pandemic market trends have shown dramatic increases in the levels of assets maintained in money market funds (MMFs), sharply increasing in the first half of 2020 and again in the first half of 2023.⁸ Given that higher-income households hold a smaller share of their financial wealth in checking accounts than other types of accounts, recent increases in MMF assets may indicate that high-income households are allocating even greater proportions of their liquid balances to these higher-earning accounts, contributing to continued declines in their checking and savings account balances.⁹

Figure 2

Figure 3

Balance trajectories in the second and third quarters of 2023 look similar across race and ethnicity groups, mirroring the trajectories of the middle of the income distribution.¹⁰ We weight median balances to account for differences in income, age, and gender across race groups, and continue to see clear level differences in weighted medians, with Asian and White households having notably higher balances than Hispanic and Black households.¹¹ Despite level differences, balances remained roughly parallel across all race and ethnicity groups, declining slightly between January and October 2023—by $200 to $300 for each group.

On a relative basis (Figure 5) balances have been fairly consistent in the second and third quarters of 2023, with a very slight increase for Black and Hispanic households. As noted in the previous Pulse release, relative balance elevation levels converged by the second quarter of 2022, and that continues to be the case, with very little differentiation across race and ethnicity groups. In October 2023, relative balance values were within 2.2 percentage points across groups, ranging from 11 to 13 percent elevated relative to 2019.

Figure 4

Figure 5

How do current cash balances compare to where households would have been had their usual growth not been disrupted by a pandemic? As households age, their incomes tend to increase and they tend to spend and save more. Every household in our balanced household panel is four years older in the final year of our analysis window than they were in the reference year—and those four additional years bring increases in income and cash balances. Previous work has shown that individuals tend to maintain relatively stable cash buffer levels over time, spending down excess cash when balances are elevated until they return to their usual cash buffer level, at which point they stop dissaving (Wheat and Eckerd 2023).

To understand current balances in the context of households’ expected life-cycle growth, we examined real balance changes for a pre-pandemic sample in comparison with our Household Pulse sample. Specifically, we used the same identification and filtering rules as our Pulse sample to construct a separate historical comparison sample with a 2015 reference year to assess balances from January 2016 through October 2019.¹² This comparison sample demonstrates the impact of the balanced panel dynamics described above outside of the context of the COVID pandemic and its associated policy responses, helping to put recent balance results into perspective.

Figure 6 shows relative balance growth both for the Pulse sample and the historical comparison sample. In both samples, balances were around 10 percent elevated by October of the fourth year after the reference year. In other words, the amount of balance elevation that we observe in the Pulse sample has come back into alignment with historical trends, rather than representing excess cash. Results for the two samples have been aligned since June 2023. 

On the other hand, Figure 7 tracks cash buffers—balances scaled to spending—and shows that this metric remains somewhat elevated relative to historical trends as of October 2023. This elevation is small—roughly 2 cash buffer days, compared to a 3-day difference in January—and the two samples had a difference of around 1 cash buffer day during the reference year. If the Pulse sample continues its slightly declining trajectory, cash buffer differences relative to the historical sample may mirror pre-pandemic conditions soon. Alternatively, families may settle on a different post-pandemic cash buffer equilibrium and maintain slightly elevated cash buffers going forward (Wheat and Eckerd 2023).

Figure 6

Figure 7