How the COVID-19 Pandemic Will Further Widen the Wealth Gap

How the COVID-19 Pandemic Will Further Widen the Wealth GapFrom school closures to banning of large gatherings to shutdown of non-essential businesses to military-enforced quarantines, countries around the world have taken a range of measures to flatten the coronavirus curve.

While these initiatives are absolutely necessary to fight this global pandemic that threatens the fabric of our society, they do impose hefty mental health costs at the individual level.

For the first time since the inception of YouTube’s comments section, a majority can agree on something – prolonged social distancing is not fun.

Even an introvert like me – who has always been mildly allergic to large crowds, and considered confinement a natural habitat – is having trouble navigating the perpetual homebound state.

But this virus brings about much more than feelings of loneliness, and the daily stress of catching and spreading it.

COVID-19 Have Different Impacts on the Rich and the Poor

The world economy has taken a serious hit following the (hopefully temporary) closures of most non-essential businesses.

Despite governments’ unprecedented crisis spending, economies are still plunging, and a significant percentage of the working class has either already been laid off, or about to be laid off.

In last week alone, an astounding 3.3 million Americans (that’s 1% of the U.S. population) have filed claims for unemployment, completely overwhelming the claims office.

Among folks whose job security remains uncontested at this time are the health-care workers (who deserve our utmost respect for their dedication and bravery, as always), and those providing essential services – the grocery clerks, the bus drivers, the garbage collectors, the car mechanics, the food bank workers, the mail carriers, etc.

This latter group has always been supremely underappreciated and even looked down upon because their jobs are deemed “easy”, and they have therefore been mislabelled as “replaceable” and “dispensable”, never mind that they are the very people keeping our society afloat right now.

Cashier Handling Credit Card

The nature of their jobs makes social distancing on the clock as attainable as finding elbow room in a New York subway pre-coronavirus.

Despite facing higher risks of contracting COVID-19, these essential workers are still paid peanuts, and receive the fewest labour protections (with the exception of those in unions).

Sure, in theory, they have a choice. They could take unpaid time off to stay at home and protect their health.

But forgoing a regular paycheck is a luxury not many could afford at this juncture.

Millions of North Americans are only a couple hundred dollars away from insolvency. Asking people to tap into their non-existent emergency funds to cover rent and grocery bills in the coming months is akin to Marie Antoinette telling famine-era French peasants to eat brioche.

So these folks keep showing up to work, washing their hands religiously, hoping that they wouldn’t catch coronavirus and bring it home to vulnerable family members.

Outside of work, it’s less viable for the working poor to self-isolate properly. They tend to live in close quarters – group homes, shelters, supportive housing, or with roommates – and travel by public transit. Buying large quantities of quarantine must-haves (toilet papers, canned foods, cleaning products, etc) is also completely out of their budget, so more frequent trips to the grocers are required.

Meanwhile, the wealthiest 0.01% is sailing around the Caribbean on their chartered yachts.

Talk about social distancing à la mode.

The lowest earning workers are hit by the double whammy of downward economy and coronavirus outbreak the most. It’s not right.

The Widening Wealth Gap

Equity investors saw their stock portfolios increase threefold or more during the longest bull run that had just ended, while other hard working families are still picking up the pieces of their finances that were shattered by the Great Recession of 2008.

For the 70% of world population living in countries where wealth inequality is growing, the unfortunate reality is that COVID-19 will, sadly, only serve to further exacerbate the wealth gap.

As losing work amid COVID-19 is becoming the norm, the working and middle classes’ income potentials are once again shredded into smithereens.

People know all too well that their 20s, 30s and 40s are the golden years for saving, investing and interest compounding in order to secure a comfortable retirement and bright futures for their children.

But how can people invest when they could barely make ends meet?

Worried About Finances

All these amazing long-term financial goals have to be put on the backburner for now, as people are obligated to put their own oxygen masks on and focus on surviving.

What little disposable income they do have will mostly go towards housing, food and utility bills, leaving little leftover for savings, discretionary spending or investments.

God forbid, if they get infected with the virus, expensive medical bills will come into play (unless they live in parts of the world that has access to universal healthcare), adding fuel to the fire.

Their stock portfolios, if they had one to begin with, have also taken a massive hit in the past few weeks, obliterating at least two years of stock market gains.

This would’ve been fine if they could ride out the market crash in peace, and leave their invested dollars untouched until the economy invariably recovers.

But what if the recession drags on for months and years, leaving people with no choice but to cash out their retirement savings prematurely just to scrape by? Not only would the liquidation of their stocks result in a realized loss (since they’re selling during a bear market), they will lose out on future gains, and likely have to take a penalty for early withdrawal.

Those in this predicament would be sent right back to square one. We could only hope there will be well-paying jobs waiting for them on the other side of this sweeping disaster, but in reality, it might take a long while for them to climb out of the financial mess this pandemic will leave them in.

Now let’s check in with the wealthy.

True, their stock portfolios have also tanked, but:

  • They have the cash flow to sustain a luxurious quarantine lifestyle
  • They don’t need to worry about taking on debts
  • They could afford to get the best possible treatments in the event that they contract the virus

And more importantly, they’re the ones with spare cash, even during a stock market crash like we’re experiencing right now.

That means the rich get to buy stocks and real estate at a steep discount, and profit from capital appreciation.

Putting Things In Perspective

Life trajectories are being drastically altered as each new case of coronavirus gets confirmed, in more ways than one.

The rich and the poor will come out of this pandemic in vastly disparate financial situations.

By the time this pandemic will be behind us, the lower earning families will have taken several steps behind – paralyzed by debts while a huge chunk of their assets get wiped out, and the wealthy will have made a giant financial stride ahead – amassing income generating assets that further compound their wealth.

In several decades’ time, the upper class will pass their tremendous wealth down, enabling beneficiaries of generational wealth to gain a leg up right off the bat. The poor, on the other hand, are less able to passing inheritances to their children, leaving the latter in a perpetual game of catch up.

The wealth gap is already Grand Canyon-sized, but it will be widened to an unprecedented level.

It’s terrifying to think about.

Onward and Forward

I don’t want to imply that the wealthy are necessarily undeserving of their wealth – that would both be untrue and hypocritical for me to claim.

I just want to urge those who’re financially privileged to be more mindful of the growing wealthy inequality, and to realize that wealth creation doesn’t have to be a zero-sum game.

And to those who’re struggling financially, I have this to say:

Don’t let coronavirus or life knock you down. It might not be easy, but it is definitely possible to still attain your financial goals, even if you feel behind.

If you or a loved one has been financially impacted by the coronavirus, this is a healthy place to share your experiences and vent your frustration.

Stay safe, everyone!

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Category: GeneralUnconventional Opinions

2 comments

  1. THIS IS SO TRUE. The poor will get poorer and the rich will get richer. Prolonged social distancing will have so many negative economic impacts especially for the working class and the people who literally just getting by day by day. The poor are scraping by, looking for what’s available to keep them afloat yet the rich are tucked away in their mansions sipping tea waiting for this phase to pass. To everyone who is struggling out there now, know there are better days are coming. Just keeping pushing forward.

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Article by: Flora Pang

Flora Pang aspires to become someone who plant trees in their spare time, write thank-you notes to strangers, and perform CPRs on unsuspecting elders. But until then, blogging about personal finance remains her only way of contributing to society. You can catch her rambling about money on Facebook, Twitter, Instagram, and (to a lesser extent) Pinterest.