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Fallout From COVID-19 Has Worsened Already Significant Economic Inequality

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In early 2020, the national unemployment rate sat between 3% and 4%. But those low unemployment rates covered up some stark inequalities among demographics.

In January, someone whose highest level of education was a high school degree was nearly twice as likely to be unemployed as someone with a bachelor’s degree, while a Black American was roughly twice as likely to be unemployed as a white American.

Since the start of the coronavirus crisis, those gaps have widened — and new ones have emerged. MagnifyMoney researchers analyzed unemployment rates across various demographics to provide further economic insight.

Key findings

  • The difference in the unemployment rate between white and Black Americans nearly doubled between January and August, from 2.9 percentage points to 5.7 percentage points.
  • The unemployment rate for Asian Americans has more than tripled since January, and the difference in the unemployment rate in August is still 3.4 percentage points higher than that of white Americans. In January, Asian Americans had a slightly lower unemployment rate than white Americans.
    • The unemployment rate difference between white Americans and Black, Latinos and Asian Americans has grown among each demographic from January to August.
  • Those with at least a bachelor’s degree saw their unemployment rate jump from 2% in January to 5.3% in August. But for those without a high school degree, that figure increased from 5.5% in January to 12.6% in August. The difference between the groups increased from 3.5 percentage points to 7.3 percentage points.
  • Americans just starting their careers have had a tougher time than those with experience. Those in the 25-to-34 age group experienced a surge in their unemployment rate from 3.7% in January to 9.7% in August.

2020 unemployment rate by race

We’ve seen wide gaps when comparing 2020 monthly unemployment rates for white, Black, Latino and Asian Americans. Here are the widest gaps seen over various periods so far in 2020:

  • January: 3 percentage points between Asian (3%) and Black (6%) Americans
  • March: 2.7 percentage points between white (4%) and Black (6.7%) Americans
  • April: 4.7 percentage points between white (14.2%) and Latino (18.9%) Americans
  • August: 5.7 percentage points between white (7.3%) and Black (13%) Americans

2020 unemployment rate by education

Across the board so far in 2020, those with less than a high school diploma saw the highest unemployment rates, followed by those who graduated from high school.

As with the other demographics we examined, unemployment rates by education type spiked from March to April. Here’s a closer look:

  • For those with less than a high school diploma: 6.8% to 21.2% (14.4 percentage point increase)
  • For those who graduated from high school: 4.4% to 17.3% (12.9 percentage point increase)
  • For those with some college: 3.7% to 15% (11.3 percentage point increase)
  • For those with a bachelor’s degree: 2.5% to 8.4% (5.9 percentage point increase)

2020 unemployment rate by age

Teens in particular have lost more employment opportunities so far in 2020, which could be related to them tending to be employed for in-person jobs rather than office work that can be done remotely.

Of the demographics we examined, the 31.9% unemployment rate in April for 16- to 19-year-olds was the highest from January to August.

Despite record unemployment, personal savings rate sees spike

Despite high unemployment rates, personal savings rates — the percentage of income left after paying taxes and spending money — have seen a spike this year.

The following chart breaks down personal savings rates by month so far in 2020:

2020 personal savings rate by month
January7.6%
February8.3%
March12.9%
April33.7%
May24.6%
June19.2%
July17.8%
August14.1%

It seems counterintuitive that savings rates would rise during such a difficult economic period, but there are a few reasons this may be occurring, said Ken Tumin, founder of DepositAccounts.

“Many people who didn’t lose their jobs still received the government stimulus checks,” Tumin said. “Also, many people cut back on their spending during social distancing orders.”

Travel, shopping, dining and entertainment options were restricted in many parts of the U.S. for decent stretches of 2020 — and still are in some states.

Tumin said the pandemic and widespread job losses have caused many to worry about the safety of their own jobs, leading to more cautious financial decisions. That fear could have encouraged people to spend less and save more.

Where to keep savings

No. 1: High-yield online savings accounts

High-yield online savings accounts generally provide APYs that are much higher than those offered by brick-and-mortar banks. Consider linking an online savings account with a checking account to electronically transfer money back and forth.

No. 2: Certificates of deposit

Certificates of deposit (CDs) from online banks, as well as CD specials from credit unions, can offer APYs that are higher than what’s available from traditional banks. These can be a good option for those with short-term savings goals in which the money won’t be needed until the CD matures.

No. 3: No-penalty CDs

Going a step further, consider choosing an online bank that offers both savings accounts and no-penalty CDs. Then, use a no-penalty CD to boost the APY without any significant loss of liquidity. No-penalty CDs often have slightly higher APRs than savings accounts, and the rate won’t fall until maturity. This offers the ability to close the CD and move the funds into a savings account without any penalty if the money is needed before maturity.

No. 4: High-yield checking accounts

High-yield checking accounts generally offer rates much higher than online savings accounts, but there are downsides. First, the high APY often only applies to a small balance cap (such as $3,000 to $15,000). Second, there are typically minimum requirements to earn that high APY, such as a certain number of debit card transactions per month.

Methodology

MagnifyMoney researchers used unemployment rate data from the U.S. Bureau of Labor Statistics (BLS) for various demographics — race, education and age — from January 2020 (pre-pandemic) to August 2020 to estimate the most significant changes.

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September Savings Index: Consumer Savings Ticks Up

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In September, 42% of Americans contributed to their savings account, up three percentage points from August. It’s also a 35% increase from March, when savings dropped significantly amid the COVID-19 pandemic that hit the U.S.

Every month, MagnifyMoney surveys more than 1,000 American consumers to find out whether they added money to their savings account — and what they’re saving for. The results comprise our monthly savings index, which began in October 2019. This month’s index also reveals some new trends in the items and occasions that Americans are saving for.

Key findings

  • 42% of American consumers contributed money to their savings account in September, up from 39% in August.
  • New cars became the No. 1 item consumers are saving for, aside from emergencies and general savings. Saving up for a new car was the top savings goal for 1 in 5 respondents (20%), which is more than in any other month since the index began.
  • The percentage of consumers saving for the holidays (14%) hit its highest total since December.
  • Men continue to save at higher rates than women, with 54% of men saving in September, versus 30% of women. This is the 12th straight month with a savings gender gap.
  • With the election just over a month away, Republicans saved more money than Democrats, at 54% and 39%, respectively.

What consumers are saving for

General savings and emergencies have topped consumers’ savings lists since we began tracking the monthly savings index in October 2019, and this month is no different.

Beyond that, buying a new car took the first spot in September, with 20% of consumers stashing money to purchase a vehicle. Additionally, 14% are already saving up for the holidays, which is a smart strategy to help avoid holiday debt.

Consumers’ savings needs also vary as they reach different life stages. For example, just about 1 in 6 Generation Xers are saving for a baby, while 19% of Gen Zers are working on their college funds.

Gender gap in savings habits remains

For the 12th month in a row, men continue to save at higher rates than women, with 54% of men saving in September, versus only 30% of women. It’s worth noting that men also took money out of their savings account more than women but — still — nearly 3 in 10 women (29%) said they don’t have any savings at all, compared to just 11% of men.

Overall, there is absolutely room for improvement in American consumers’ savings habits, especially given the pandemic’s economic impacts are far from over. Every dollar you add to savings makes a difference. Even saving just $5 a week adds up over time, especially if you’re able to open a high-yield savings account offering a competitive interest rate.

Methodology

MagnifyMoney commissioned Qualtrics to conduct an online survey of 1,028 American consumers, with the sample base proportioned to represent the overall population. We defined generations as the following ages in 2020:

  • Gen Z: 18 to 23
  • Millennial: 24 to 39
  • Gen X: 40 to 54
  • Baby boomer: 55 to 74
  • Silent generation: 75 and older

The survey was fielded Sept. 11 to 14, 2020.

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Where It Costs the Most to Upgrade Your Apartment

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For renters living in an apartment amid the coronavirus crisis, a once-cozy bedroom may be feeling cramped, especially if they’re working from home. But there’s good news, unless they live in St. Louis or Los Angeles.

As some Americans fled cities because of the crisis, the cost of renting a one-bedroom apartment fell in July 2020, compared with the same period last year, in 35 of the 100 largest U.S. metros. Renters looking to upgrade to a two-bedroom may be able to do so for cheaper, according to the latest MagnifyMoney research.

That, of course, depends on where you live. Here’s what we found.

Key findings

  • St. Louis residents can expect to pay 40.7% more on average if they want to upgrade from a one-bedroom to a two-bedroom rental, the highest among the metros we studied.
  • Los Angeles has the second-highest cost of upgrading. Renters here who want an additional bedroom are looking at paying $830 more on average – a 38.8% increase.
  • In Minneapolis, renters looking to upgrade to a two-bedroom will see their housing costs increase by $520 a month on average, or 37.4%.
    • Assuming an average cost of driving of 62 cents per mile, Minneapolis workers would break even when upgrading their apartment if they cut 839 commuting miles per month, or roughly 19 miles per trip.
  • Memphis, Tenn., residents need to pay the least to upgrade their living space. Our analysis shows Memphis renters need to pay just an extra 6% on average to go from a one-bedroom to a two-bedroom.
  • In Cleveland, the difference in price between a one-bedroom and two-bedroom apartment is fairly small. The average two-bedroom costs just $60 more a month than a one-bedroom, or 6.4%.
  • In Indianapolis, residents would need to pay an additional 6.9% in rent on average to move to a more spacious apartment. In commuting terms, that is equal to driving about 97 miles a month, or less than two miles per trip.
  • For people who have already been planning a move to a bigger space and have kept their source of income, now could be a good time to move. The prices for one-bedroom apartments are down year over year in 35 metros, while the prices of two-bedroom apartments are down year over year in 25 metros.
  • In dollars, California cities tend to come with the highest price tag. In San Francisco, moving from a one-bedroom to a two-bedroom costs an additional $1,010 a month on average. In Oakland, Calif., that figure is $680 a month on average.

Metros with biggest 1-bedroom rental year-over-year changes

Three Midwest metros – Cleveland, Indianapolis and Columbus, Ohio – saw the largest year-over-year percentage increases in pricing for one-bedroom apartments. Rounding out the top five were St. Petersburg, Fla. and Reno, Nev.

The metros with the largest year-over-year percentage decreases were more varied in location, with the Northeast, Midwest, West and South all represented. Two of the bottom five cities are in Texas.

Metros with biggest 2-bedroom rental year-over-year changes

Meanwhile, while looking at the largest year-over-year percentage increases in pricing for two-bedroom apartments, the Northeast and Midwest each have two metros among the top five, with the South taking the other spot.

As for the metros with the largest year-over-year percentage decreases, the West took four spots (California occupied three), while New York took one.

How shortening commute can affect breakeven point to upgrade

To make up for an increase in rent prices, moving closer to your workplace can lower the cost of commuting, as can working from home. In some metros, the cost of rent is so high that cutting a commute wouldn’t be enough to cover an increase.

The following examples illustrate how moving closer to work – or working from home – can save enough money to break even on a rent increase (Wichita, Kan. and Memphis, Tenn.) and where a shorter commute won’t do the trick (San Francisco).

  • In Wichita and Memphis, the cost to upgrade to a two-bedroom from a one-bedroom is $50 on average. Based on 62 cents per mile, a driver would need to cut commuting by about 81 miles over the month (or about four miles a workday) to make up that $50 difference.
  • In San Francisco, the cost to upgrade to a two-bedroom is $1,010. Based on 62 cents per mile, a driver would need to cut commuting by about 1,629 miles a month (or about 74 miles a workday) to make up that $1,010 difference.

4 signs you’re ready to consider a 2-bedroom apartment

No. 1: Your home is your office

If your office is closed due to social distancing measures (some offices have remained permanently closed) during the COVID-19 pandemic, moving to a two-bedroom apartment with room for a proper office can help cut down on stress and keep you feeling productive.

No. 2: Your family is growing

If you’re planning on having a child in the near future, you’ll likely want to upgrade to a bigger apartment so the baby can have a nursery or to create a quiet place to work from home.

No. 3: You moved far from home

It’s OK to be excited to spread your wings and feel a bit homesick at the same time. If you’ve made a big move and live far from loved ones, you may want an apartment with room for a guest bedroom that Mom or your bestie can crash in when they visit. The more the merrier.

No. 4: Your budget can accommodate an upgrade

Sarah Berger, MagnifyMoney’s millennial finance columnist, said you should generally not spend more than 30% of your gross income on rent. If you’ve recently received a pay raise and can still afford to allocate 30% of your income on rent, you could afford the higher cost. That being said, Berger warns to be wary of lifestyle creep. “Just because you can afford to pay for a bigger or more expensive place doesn’t mean you should,” she said.

How to save money to upgrade to a 2-bedroom apartment

  • Save more – and spend less. Ramp up your savings and cut back on unnecessary expenses. Berger recommended trimming recurring subscriptions, cooking more meals at home or negotiating a lower cable bill.
  • Make passive income. Berger advised pulling in passive income to increase your savings even faster. This can range from moving money to high-yield savings accounts or money market accounts to using cashback credit cards.
  • Find a roommate. If you have your heart set on a two-bedroom apartment but aren’t sure you can swing it, finding a roommate can be helpful. “It might not be feasible to afford a two-bedroom by yourself quite yet, and having a roomie splitting that rent check could be a short-term solution while you build up your savings,” Berger said.
  • Move in with family. Continue cutting a “rent” check if you move in with your family, Berger suggested, but put that money in a savings account dedicated to your future housing expenses.

Methodology

Researchers analyzed July 2020 apartment and rent data from Zumper to estimate the cost of moving from a one-bedroom to a two-bedroom in the 100 largest metros in the U.S. metros were ranked from highest to lowest based on percentage difference. The AAA average cost per mile for 15,000 miles a year – 62 cents – was used to calculate the breakeven points.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.