The Financial Impact of the Coronavirus (COVID-19)

The Coronavirus COVID-19 and Your Finances

Be Prepared! Whether you have already experienced the health effects of COVID-19, it is certain to affect your personal and household finances.

What should you do financially to get through the coronavirus COVID-19 pandemic? 

Regardless of the current, past, or future health effects of COVID-19 on you or your family, the pandemic has affected and will likely continue to affect household finances for years to come. Creating a spending plan, prioritizing your spending, and using your resources efficiently will always be critical to your financial stability. 

Before proceeding, please know that this post on COVID and its financial impact on households does not mean to diminish the terrible loss of life and the emotional toll and life-changing effects of the loss of a loved one caused by COVID. Early in the pandemic, posters on social media sometimes asked if anyone knew anyone who had died because of COVID-19, as if to suggest it was a non-crisis or, more callously, a made-up crisis. 

Nearly two years into the pandemic, you can count yourself extremely fortunate if you have not lost someone in your family or circle of friends to COVID-19. Approximately one in five hundred Americans have died from the virus to this point. Since the average American has approximately 600 acquaintances, according to the NY Times, most of us know someone taken from us by the pandemic. 

Economic Impact of COVID-19 

Since it broke across the world like Noah’s flood, COVID-19 has had a massive and devastating effect on economies everywhere, even if it has not hit everyone’s household budgets. From the cancellation of major sporting events and local religious gathers to the closing of travel between the US and other countries, international trade and small-town markets have been severely disrupted.  

While Americans tend to pride themselves on our rugged independence, sometimes even to excessive isolationism, we have seen over the past couple of years just how interconnected we are economically to countries around the world. As the exchange of goods between the US and Europe and Asia came to a virtual standstill for weeks and even months in some cases, everyday products began to disappear from retail shelves and sales lots. Fear of the unknown added to the problem, leading to runs on toilet paper, bottled water, and many other household supplies. 

This seemed like a boon to American Made brands, but fewer consumer goods being sold overall means fewer purchases, which means lower business profits, which in turn means less income to hire and pay employees. 

We saw its effects when world economies experienced the largest drop in production ever in the spring of 2020 when there were so few people working other than at home. 

With this basic understanding of the chain reaction that leads from lower trade to smaller or fewer paychecks, you could expect a slowdown in the US economy to last more than a month or two, as it in fact did. Emergency government measures, including multiple stimulus checks, seemed to keep consumer spending going, although for a large portion of the population, months of unemployment remained. 

Even now, when the demand for employees at seemingly every business far outpaces the supply of willing workers, not all businesses are back at full capacity. This means that not all communities are benefiting from a long-term recovery yet. 

Going into the depths of the COVID pandemic in the spring of 2020, many economists expected the financial effects of the pandemic to cause greater economic stress in the US than even the housing crisis and the Great Recession of the late 2000s. 

So far, their expectations seem more than justified, though in different ways. While most American households have felt no lasting, negative financial effects, a large percentage have fallen further behind because of the experience. 

Because the US and world’s general economic situation was overall quite healthy before the novel coronavirus outbreak in the fall of 2019, recovery has actually been less painful than it otherwise could have been. However, with new and used car prices still high due to supply chain shortages stemming from COVID-related manufacturing shutdowns, you should also expect the fallout from the pandemic to continue to affect you directly and personally in your wallet for months or perhaps another year or so. 

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Household Impact of COVID-19

Individuals who work for businesses heavily involved in international trade have felt the impact most directly, with loss of bonus and other incentive pay often followed by furloughs and possibly even temporary or permanent job loss. 

Workers with medical concerns or who have children with such concerns have found it more difficult to return to the workforce while the Delta Variant of the coronavirus continues to fill many hospitals intensive care units with largely unvaccinated patients. 

Even in the current state of diminishing panic at the government, business, and social levels, you will continue to see financial disruptions in your day-to-day spending options. 

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Event Cancellations and COVID-19

Even though most major sporting events and seasons returned in 2021, including the delayed summer Olympics, many continue to limit their crowd sizes so long as COVID continues as a pandemic rather than an epidemic. 

Consequently, employees of the companies that depend upon these events may continue to feel their own economic contraction. From vendors and retail shops nearby to hotel and airline companies to many in the gig economy such as Uber and Lyft drivers, smaller events will mean less side income or less income at all.

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Travel Bans and COVID-19

As domestic and international travel bans began to lift, conference planners began their tough work of rescheduling and even reinventing their future events. Many associations and organizations continue to offer a virtual-only conferences. Most seem to be comfortable offering hybrid events with the option to attend in person or online.  

In-person conferences offer welcomed news to the hospitality industry, which has suffered greatly since the arrival of COVID. Hotels still have plenty of room for travelers, but the return of business travelers bodes well for convention centers, their employees, and the businesses surrounding them. 

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COVID-19 Quarantines and Mandates

Early, general quarantines across the country led to a loss of income or at least the depletion of paid time off. For small business owners who earn no income unless they are working themselves (think many physicians, attorneys, dentists, accountants), not to mention anyone who depends upon multiple side hustles to pay for rent and groceries, the quarantine was a financial nightmare. 

Even after states lifted quarantines, many companies continued to offer or even require employees to work from home. With the summer 2021 waive of cases from the Delta variant, some states and local communities have implemented mandates not just for masks but also for vaccinations. In some cases, these mandates have led some employees to quit rather than get vaccinated, resulting in low staffing and highly demanding work schedules for those who remain.  

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COVID-19 and Scams

Inevitably, natural disasters and national crises spawn waves of scams and fraudulent services. Fear tends to spawn conspiracy, and COVID created a fearful environment perfect for scammers and misinformationists. Early on, concerns over scams focused on snake oil salesmen peddling “secret” cures and vaccinations to anyone desperate enough to pay for them. Such remedies came in the form of pills, herbal formulae, and non-traditional “natural” treatments. 

Unfortunately, this same fear has generated a movement in the opposite direction. Rather than push people toward harmful or useless remedies, this fear has fueled a massive movement away from proven vaccines, spurred by individuals and misleading media organizations who generate millions of dollars in revenue by selling unproven theories and alternatives. 

Avoid becoming the victim of unethical activities that prey on your fears and the collective panic. You saw this in play in the rush to clear shelves of toilet paper, but if you find an “opportunity” to buy such supplies online at exorbitant prices, do yourself and your bank account a favor and steel yourself against overreacting. 

Budgeting for COVID-19 Direct Impacts

Although unemployment skyrocketed early in the pandemic, most workers have retained and will retain their income and current salaries, although there has been a strain placed on government agencies and nonprofit charities by the large ranks of the unemployed. 

As seen very clearly on the news and social media, crazed runs on everything from hand sanitizer to even toilet paper seemed like a good idea for many households at the time, but for those who were not in the financial position to buy in bulk, this left them with few good options. After all, how comfortable are most neighbors knocking at the door and asking for a roll of toilet paper? 

While many may think that using emergency savings funds is perfect for purchasing supplies in this sort of situation, you would do well to remember that emergency funds are for times of no income. Periods of no income include unemployment and missing work due to emergency medical crises. Until either of those situations arise in your household, it will always be a good idea to sit tight and leave your emergency savings alone. 

As for stocking up on needed supplies, the best time to do so occurs before the next panic sets in. Once consumers begin purchasing irrationally, you may be faced with either empty shelves or exorbitant prices. Learn a lesson from this experience and buy an extra can or two of soup, an extra package of bottled water, or even an extra package of toilet paper when you do your normal shopping in the future to stock up slowly. 

Whether we’re on the downhill slope or are on another temporary lull in this pandemic, having a plan for spending your resources wisely will benefit you today and into the future. If you do not have a spending plan (aka budget) for your household, now is certainly a better time than later to put one together. 

A budget is simply a plan for where you would like your money to go. To prepare for potential health issues and medical expenses, you should probably divert some discretionary spending from activities like ordering in, purchasing the latest movie, going on a long-overdue vacation, and even signing up for subscription services, to an emergency savings fund for medical-related expenses.  

Prioritizing Expenses

Prioritize where you would like your money to go. Typically, this includes housing and utilities, food, transportation, and communications, and some clothing. While I am not a proponent of reactionary finances, meaning that I do not believe households should go into financial lockdown because of this virus pandemic, households should always consider, and even reconsider, their priorities. In times of crisis, what is most important to us comes into clearer focus. Ask yourself if the money you spend currently goes to the most important priorities in your life.

COVID-19 and Debt

Do not discount the continued importance of paying down your debt balances consistently and paying them on time every month. COVID-19 will not end society as we know it (though has changed some of the ways we interact), but if you stop making payments to your creditors, you could put yourself into a financial hole that will take years or even decades to dig out of.

Household Savings and COVID-19

Throughout the course of this pandemic, most households should continue to contribute to their savings funds so long as they have a salary or wages coming in. Do not max out your income and credit cards because you are worried about another run on toilet paper and hand wipes. Do not go online to stock up on a one-year supply of hand sanitizer. Instead, follow the guidelines from the CDC while continuing to contribute regularly to your emergency savings fund. Additionally, you should look at funding accounts for your short-term goals. 

In the end, COVID-19 has disrupted our entire society, caused the unfortunate deaths of nearly a million of our co-citizens, and led to a different way of dealing with our personal finances in many households. Still, it may be that in 20 years we will look back on 2020 not as the year of COVID-19 but as the year of the Great Toilet Paper Panic.

Related Questions

Should I stop investing in the stock market? Consider what Warren Buffett did when the stock market plunged in 2007, 2008, and 2009. Instead of selling stocks in panic or staying away from the stock market, he jumped in feet first. The stock market will rebound. Is now not the best time to take advantage of other people’s panicking? Certainly, you would at the very least be wise NOT to cancel any automatic monthly investments through your 401(k) or IRA.

Should I stock up on supplies in case of quarantine? Nobody likes the thought of being quarantined for days, let alone for months. Look in your cupboard for canned foods and supplies you could use in case of such an emergency. Before you head to the grocery store to empty the shelves, remember that during current quarantines, most grocery stores remain open and continue to restock shelves regularly. In a pinch, you will likely have a friend, family member, or neighbor who could do your shopping for you, not to mention the option of ordering groceries online.

*Hover over each country to see the most recently updated statistics from the World Health Organization (WHO)

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Written by Author and speaker Todd Christensen, AFC, MIM, MA, of Money Fit by DRS. Todd promotes individual financial responsibility and household financial stability in his writings and conference presentations. He has been interviewed by and featured on, Fox Business News, Forbes, HuffPost, and and many more quality news media organizations.

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