Harvard University Study Says Richest 25% of Americans Cut Spending the Most During Pandemic

The richest quarter of Americans cut their consumer spending more than any other income group during the height of the pandemic, according to a study by a group of Harvard University researchers.

As a result of high-income earners sharply reducing their expenditures, the revenues of businesses that cater to affluent households suffered, the study from Opportunity Insights, a Harvard research group led by Raj Chetty, John Friedman and Nathaniel Hendren, found. In turn, small businesses in wealthier regions laid off 65% of their low-wage earners, while in the lowest-rent areas, fewer than 30% lost their jobs.

The research group collected data from credit card processors, payroll companies and financial services firms to report statistics on key indicators including consumer spending and employment rates. They then used the data to analyze the economic impact of the coronavirus pandemic.

^Bloomberg

More than half of the total reduction in credit card spending between January and early June came from households in the top quartile of the income distribution, while only 5% came from households in the bottom income quartile, the researchers found. The reason is twofold -- the rich account for a larger share of total spending to begin with, and high-income households reduced their spending by 17%, whereas low-income households reduced their spending by only 4%.

A majority of the drop came from reduced buying of goods or services that require in-person contact -- such as hotels, transportation and food services -- while spending on things like landscaping services and home swimming pools didn’t fall.