The Big Idea
Mostly strong consumers, but not all
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Household finances remain in robust condition overall, a conclusion borne out by the aggregate statistics published by the Federal Reserve. The Fed also publishes, with a lag, more detailed data broken down by income. These data offer insight into why there is so much concern about households at the bottom end of the income scale.
A quick review of the aggregate data
The best place to start is with the overall data. In particular, liquidity in real terms returned to more or less in line with where households wanted by 2023. That shows up in household liquid assets (cash plus bank deposits plus money market account balances) in real terms through the end of last year (Exhibit 1).
Exhibit 1: Real household liquid assets
Source: Federal Reserve, BEA.
Over the past two years, the growth in real household liquid assets has once again outpaced the pre-pandemic trend. As of the end of 2025, the level of this measure, at $16.0 trillion, sat about $1.3 trillion, or nearly 9%, higher than if the trend rate of growth seen over the decade prior to the pandemic had continued going forward from the end of 2019. In sum, in the aggregate, households find themselves in a quite favorable liquidity position.
Liquid assets by income quintile
Shortly after the Fed’s aggregate Financial Accounts numbers are released each quarter, the Federal Reserve publishes more comprehensive data that break down the results in several different ways, including by income. These data, called the “Distributional Financial Accounts,” offer an interesting view of household finances across the income spectrum.
Households are divided into the following six groups along the income scale: the top 1%, 80% to 99%, 60% to 80%, 40% to 60%, 20% to 40%, and 0% to 20%. The following six charts show the household liquid assets for each of the six groups noted above through the end of last year.
Exhibit 2: Liquid Assets – Top 1% by Income
Source: Federal Reserve.
Exhibit 3: Liquid Assets – 80% to 99% Income
Source: Federal Reserve.
Exhibit 4: Liquid Assets – 60% to 80% Income
Source: Federal Reserve.
Exhibit 5: Liquid Assets – 40% to 60% Income
Source: Federal Reserve.
Exhibit 6: Liquid Assets – 20% to 40% Income
Source: Federal Reserve.
Exhibit 7: Liquid Assets – 0% to 20% Income
Source: Federal Reserve.
These pictures reveal a few key observations. First, for the top 80% of the income scale, these figures (which are in nominal terms) broadly mirror the aggregate figures (in real terms) from Exhibit 1. Liquid assets surged in 2020 and 2021, fell for a year and a half, and then resumed modest growth after mid-2023. In 2025, the pace of growth picked up, suggesting that households in the top 80% of households by income grew increasingly flush over the course of last year. For each of the top four income quintiles, liquid assets increased in 2025 by 7% or more, well ahead of inflation or even the increase in nominal GDP.
Exhibit 7 shows that the experience for the bottom quintile was substantially different. Households in this group generally drew down their liquid assets in 2020 and 2021 (when everyone else was accumulating them) and then increased liquidity at a modest pace, like everyone else, over the last two years. Perhaps the most telling aspect of these numbers is that the level of household liquid assets for the bottom quintile, even in nominal terms, is below the pre-COVID level.
Of course, inflation has eaten away at families’ purchasing power, especially for the bottom of the income scale. Prices rose by 23.2% from the end of 2019 through the fourth quarter of 2025 using the PCE deflator (arguably, given the composition of their purchases, inflation has been even higher for lower-income households). Exhibit 8 shows the percentage change in real liquid assets for each cohort. The top 80% of the income scale has boosted their liquid assets, even in real terms, since the pandemic. In contrast, the bottom quintile is in a much worse liquidity position.
Exhibit 8: Nominal and Real Liquid Assets Increases by Income Cohort
Source: Federal Reserve, BEA (PCE Inflation).
Over the six-year period from the end of 2019 to the end of 2025, nominal GDP rose by a little over 43%. Relative to that advance (since household liquid assets should probably expand not only to offset inflation but also to mirror the real growth in the economy), liquid assets for the top 20% of the income scale have increased substantially faster than the economy, and roughly in line with the expansion of the economy for the middle three quintiles. In contrast, the bottom 20% have fallen dramatically behind relative to everyone else.
Robust middle
The prevailing narrative in recent months has been that consumer spending is being held up by exorbitant outlays from flush wealthy households, while the vast majority of families struggle to get by. However, the Federal Reserve data turn that story on its head. In reality, while the bottom 20% of the income scale is indeed under stress, the bulk of households are in good position.
A recent study published by economists at the American Enterprise Institute came to a similar conclusion. First, they adjusted household income over time for family size. Then, using the government definition of the poverty line as a reference, they divided households into five groups; poor or near poor (less than 150% of the poverty line), lower-middle class (150% to 250%), core middle class (250% to 500%), upper middle class (500% to 1,500%), and rich (1500% and up). The share of families in the bottom two groups sank from 53.8% in 1979 to 34.5% in 2024. Conversely, the proportion of families in the top 2 categories soared from 10.7% in 1979 to 34.8% in 2024. In particular, in contrast to the popular narrative of the middle class being hollowed out, the authors found that around 20% of households shifted over a quarter century from poor or lower middle class to upper middle class. The broad point is that a rising proportion of households have raised their living standards and moved to a higher level of affluence and, therefore, spending.
Economic implications
The Federal Reserve data defines the bottom quintile as households with incomes up to $31,200 (as of the end of 2021). Based on annual Labor Department data for 2022, the bottom quintile of the income scale only accounts for about 9% of total consumer spending. Thus, if one believes that the top 80% of the income scale is in robust financial shape, then overall consumer spending growth should hold up well, even as those at the bottom face intense financial pressure.
While the popular narrative is that most families are struggling while a few super-wealthy households are sustaining the aggregate figures, the underlying reality appears to be the mirror image. Those at the bottom of the income scale are indeed under increasing pressure, but the vast majority of households are on solid financial footing and should remain so as long as the labor market remains healthy.
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