Israeli Households’ Use of Financial Resources and Government Assistance During the COVID-19 Pandemic

Background

The social distancing requirements and other steps taken by the Israeli government to slow the spread of COVID-19 have caused considerable damage to the economy. While a previous report dealt with the impact of the pandemic on the income and expenditures of Israeli households, the present report studies how households used financial resources (i.e. savings and loans) and the government assistance provided between March and August, 2020.

Goals

  • Measure the percentage of households that have reduced or withdrawn savings, taken out loans, or deferred payments in the wake of the pandemic.
  • Understand which households used these resources more, and identify patterns that are not apparent from aggregate financial data.
  • Examine the extent to which various types of government assistance have helped mitigate the harm to households.

Methodology

Data were collected through an internet survey conducted among a representative sample of 1,501 respondents, age 25-70, from the Jewish population in Israel. The survey was conducted on August 16-18, 2020, after the first of the closures that were imposed to deal with the pandemic and before the second closure.

Findings

The survey found that almost half of all households reduced their savings, and one-sixth of all households borrowed money, to deal with the economic impact of the crisis. Low-income households were more likely to use financial resources, and in particular, were more likely than high-income households to: (a) reduce current savings or withdraw savings (48% compared to 37%, p<0.01); (b) take a loan from a financial entity (10% compared to 7%, p=0.04); and (c) enter into overdraft (13% compared to 6%, p<0.01). The data also reveal that affected households (households that lost income due to the crisis) used several sources of financing at the same time – taking out loans and reducing savings while also reducing expenditures. These results indicate greater harm to these households than could be inferred from separately examining the frequently-used administrative data sources, in which each such data source each of which includes data only on a single economic outcome.

It was found that, for the average affected household, the government grants provided only limited assistance in coping with the crisis (and that the effects of this assistance were not statistically significant). However, among affected households whose incomes were below-average, the government grants helped more (and the results were statistically significant). For example, among the self-employed who had to reduce or close their businesses during the first closure period, those who received grants for the self-employed were only slightly less likely to make significant reductions to their expenditures compared to respondents who did not receive these grants (34% compared to 43%, p=0.37). Among the self-employed with below-average incomes whose businesses contracted or closed, the effects of the grant were much stronger (within this group, only 26% of those receiving the grants significantly reduced expenditures, compared with 56% of those who did not receive the grants, p=0.04). Looking broadly at all types of grants, most of the households surveyed reported that they used the money they received to pay for basic needs such as food and services (electricity, water, etc.). Those with below-average incomes were more likely than those with average or above-average incomes to report that they spent the money on basic needs (74% compared to 57%, p<0.01) and were also more likely to report that the money was very helpful (26% compared to 15%, p<0.01).

Comparing the first two broadly distributed grants given during the pandemic, it appears that the impact of the grants to families with children was greater than that of the impact of the grants to those above retirement age. Compared to the households receiving grants for the those above retirement age, households receiving grants for families with children were more likely to make use of the grant money, especially to cover expenses, and were more likely to report that the grants helped them to a significant extent. Although the grants for families with children were not specifically targeted at the affected families, it seems that these grants were similarly effective compared to grants that were targeted at the affected population.

Policy Recommendations

Policy makers should continue to ensure that households affected by the crisis have an appropriate level of access to savings and loans, and should also consider more targeted government funding for those households and small businesses that were affected by the crisis and which may not have access to other financial resources. These efforts should be accompanied by outreach programs that educate households about proper financial management and the difficulties that may arise due to over-utilization of financial resources.

Regarding the more broadly distributed grants, grants to families with children appear to be more effective than grants to the population above retirement age. Future studies should also examine the impact of the universal grants given in August to all citizens in order to understand the full economic impact of different types of government grants on the economy and on household well-being.

For MJB’s publications on the COVID-19 pandemic in English, press here.

For MJB’s publications on the COVID-19 pandemic in Hebrew, press here.