Equity-Rich, Cash-Poor: The Financial Paradox Defining Today’s Economy
The U.S. economy finds itself in a curious state. On paper, Americans have never been wealthier. Disposable personal income—what’s left of an individual’s income after paying mandatory expenses like taxes—is at record highs, and homeowners hold more equity than at any time in history. Yet millions of people are feeling the pinch, struggling to make ends meet despite what should be an era of financial prosperity. How can both realities exist at the same time?
This paradox—being asset-rich but cash-poor—reflects the ripple effects of the COVID-19 pandemic, compounded by years of economic volatility. During the early pandemic years, U.S. households saved at unprecedented rates, with the personal savings rate reaching a record-breaking 32% in April 2020.
Source: U.S. Bureau of Economic Analysis, Personal Saving Rate [PSAVERT], retrieved from FRED, Federal Reserve Bank of St. Louis.
Fast forward to late 2024, and that figure has plummeted to just 4.4%. This dramatic reversal begs the question: where did all that money go?
Paper Wealth vs. Real Spending Power
To understand this disconnect, it’s helpful to examine disposable personal income, which hit a record $21.9 trillion in October 2024. This metric represents what households have available after paying taxes and other mandatory expenses—a figure that should theoretically reflect financial flexibility.
Source: U.S. Bureau of Economic Analysis, Disposable Personal Income [DSPI], retrieved from FRED, Federal Reserve Bank of St. Louis.
Yet despite its historic levels, disposable income hasn’t translated into greater financial freedom for most Americans. The reason? Inflation. Even as incomes rise in dollar terms, their purchasing power is shrinking. Essentials like groceries, rent, and utilities cost significantly more today than they did just a few years ago.
The Inflationary Squeeze
Inflation has been a persistent challenge in the post-pandemic economy. Core inflation, as measured by the Personal Consumption Expenditures (PCE) index excluding food and energy, remains elevated. Over the past four years, price increases have compounded:
December 2020–2021: Prices rose 3.45%.
December 2021–2022: An additional 6.5%.
December 2022–2023: Another 4.5%.
2024 (Year-to-Date): Up 3.96%.
Source: Federal Reserve Bank of Atlanta, Sticky Price Consumer Price Index less Food and Energy [CORESTICKM159SFRBATL], retrieved from FRED, Federal Reserve Bank of St. Louis.
To put this into perspective, $100 in January 2020 has the same purchasing power as $122.36 today. For households, these compounded increases mean higher costs for everything—without a proportional rise in wages. You can see how inflation has impacted purchasing power with the BLS inflation calculator.
Compounding the problem are rising borrowing costs. Mortgages, credit cards, and auto loans now come with higher interest rates, making even modest debt harder to manage. For example, as of June 2024:
Average car loan financed: $39,266
Average interest rate: 8.4%
Monthly payment on a 36-month term: $1,237
Sources: Board of Governors of the Federal Reserve System (US), Average Amount Financed for New Car Loans [DTCTLVENANM]; Finance Rate on Consumer Installment Loans [RIFLPBCIANM60NM], retrieved from FRED, Federal Reserve Bank of St. Louis.
Credit card debt has also soared, with total balances reaching $903 billion in Q3 2024—up from $649 billion in Q3 2020.
Source: Federal Reserve Bank of Philadelphia, Large Bank Consumer Credit Card Balances [RCCCBBALTOT], retrieved from FRED, Federal Reserve Bank of St. Louis.
Homeowners: Equity-Rich, Liquidity-Poor
For homeowners, there is some good news. Household equity has reached record levels, thanks to years of rising property values. For many, their home is their most significant financial asset, offering a sense of stability and long-term wealth.
Source: Board of Governors of the Federal Reserve System (US), Households; Owners' Equity in Real Estate, Level [OEHRENWBSHNO], retrieved from FRED, Federal Reserve Bank of St. Louis.
The challenge, however, is liquidity. Home equity isn’t cash, and accessing it requires borrowing through a cash-out refinance, home equity loan, or reverse mortgage—options that have become less attractive in today’s high-interest-rate environment. Many homeowners now find themselves sitting on significant wealth they can’t easily use.
The Debt Divide: Homeowners vs. Renters
While homeowners wrestle with how to access their wealth, renters face an entirely different challenge. With no equity to fall back on, they’re hit hardest by rising housing costs. Rent increases have consistently outpaced wage growth, leaving renters with fewer resources to save or invest.
This dynamic underscores a growing inequality in today’s economy. Homeowners benefit from rising property values, while renters struggle to keep up with higher costs and no corresponding wealth accumulation.
A Path Forward
This paradox—being wealthier on paper but feeling poorer in practice—highlights the challenges of balancing long-term financial health with short-term needs. Navigating this landscape requires prioritizing flexibility, liquidity, and resilience:
Rebuild Savings: Even small contributions can provide a buffer against unexpected expenses.
Leverage Equity Strategically: Home equity can fund high-priority goals like consolidating debt or making investments but should be used wisely.
Optimize Debt: Paying down high-interest balances and locking in fixed rates can ease financial strain.
Focus on Resilience: Adjusting spending, creating realistic budgets, and building emergency funds provide stability in turbulent times.
Ultimately, the story of being equity-rich but cash-poor underscores an essential truth: financial security isn’t just about what you own but what you can access when you need it. By adopting thoughtful strategies, it’s possible to turn today’s financial challenges into opportunities for growth and stability.