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Parents, especially those in lower-income households, said they were doing a lot better financially last year, and the government’s expanded child-tax credits may have played a significant part in that.
That’s according to a Federal Reserve report, based on on the annual national Survey of Household Economics and Decisionmaking (SHED), mostly based on data collected last October and November. The report, released Monday, found that the share of Americans who said they were able to cover $400 in emergency expenses, using cash or its equivalents, reached a 9-year-high.
Lawmakers increased the child-tax credit to a maximum total of $3,600 for children under age 6 and $3,000 for kids between the age of 6 and 17. The CTC was temporarily expanded in 2021 by the American Rescue Plan Act. Families who were eligible for enhanced CTC received advance monthly payments of up to $300 per child under age 6 and up to $250 per child between age 6 and 17.
Parents living with children under age of 18, among others, were one of the groups that has reported experiencing a huge increase in their financial well-being last year. Around three-quarters of parents reported they were doing at least OK, up by 8 percentage points since 2020 — when the pandemic began, although that share was still lower prior to the pandemic. The share for other adults did not decline in 2020.
The authors of the report said the reasons for the increase were likely multifold — most of schools resumed in-person classes, which significantly freed up time and resources for parents who were in need of childcare support. At the same time, government-issued financial relief also contributed to the resources parents had at hand. A majority of parents saw an increase in their monthly income because of the higher child-tax credits.
While most parents with higher-income reported that they saved a larger share of the extra benefit, parents in lower-income households reported that they used the money to pay bills — mostly housing, as well as spending it on their children and/or household food.
As a result, parents with lower incomes reported an even higher increase in financial well-being in 2021 than other parents. For those with an annual income under $25,000, the share of parents who reported feeling “at least OK” rose by 13 percentage points in 2021 to 53%.
The authors also pointed out that because some parents were able to save the child tax credit — or at least part of it — it potentially boosted their ability to cover an emergency expense.
Government officials said in a press call on Monday that the increased financial well-being for parents is due to a variety of factors, and they could not single out if the expanded child-tax credit was the major reason behind that.
The expanded version of child-tax credit ended last December with the credit returning to a maximum of $2,000 in 2022. During the final days of the extra credit, some parents became increasingly worried about rising prices due to inflation.
However, advocacy groups have underscored the significance in those checks helping low-income families.
The Economic Security Project, an advocacy organization working to expand the child tax credit and other government tax breaks and benefits, released its own poll of 1,214 adults, using the same set of questions in the SHED report.
More adults (49%) were unable to cover that $400 emergency expense in May 2022 — versus 32%, per the Fed’s own survey of 11,000 adults in November 2021.
