The pandemic has shown a light on financial issues that need to be addressed by policy makers in the U.S., according to a Morningstar report released today.

The impact of the pandemic on American’s finances is complex and unequal, according to the report, “The Covid-19 Pandemic, Retirement Savings, and the Financial Security of American Households.” Morningstar partnered with the Aspen Institute’s Financial Security Program, a research organization at the University of Chicago, and the Defined Contribution Institutional Investment Association to compile the report.

“When we look at the financial impact of the pandemic on American households, the picture that has emerged is complex,” the report states. “Some families have been hit hard and have yet to recover, while others are clearly better off than they were before Covid-19. ... The pandemic provided a shock to people’s financial lives, and in that shock, we can learn who had adequate support and preparation, who didn’t, and why.”

Morningstar offered policy changes that need to be made to make such situations less harmful and more equal among various segments of the population.

Americans need to be encouraged to set aside emergency savings, the report said. “Emergency savings were instrumental in helping households face the financial storm of the pandemic, but an emergency saving fund cannot help if it does not exist. There are strong differences across ethnic and racial lines in access to and use of savings vehicles, with Black households being most likely to be unbanked altogether, even after accounting for income differences,” Morningstar said.

In addition, policies that increase retirement savings among low-income households would decrease the racial gap that now exists in retirement savings.

Policies need to be established to help decrease student debt and medical debt, which appear to be clear warning signs of financial trouble, the report said. “Low-income households had the highest ratio between student debt and income, suggesting the necessity for a lifeline to help these households pay their debt,” the report said.

Workplace benefits known as “sidecar savings,” which are emergency savings vehicles added to workplace retirement programs, “are both increasingly popular and potentially valuable tools to help Americans weather financial storms,” the report said.

The study found that most American households did not dip into their retirement savings for loans or withdrawals during the pandemic, but the number who did increased to an estimated 12.6% in 2020 primarily due to coronavirus-related distributions enabled by the CARES Act. Loosened retirement withdrawal rules roughly doubled the probability of withdrawal where the new CARES Act rules were known and applied, Morningstar said.

The pandemic focused attention on financial gaps based on income or race that already existed. “African American households showed low emergency and retirement savings both before and during the pandemic [and] Hispanic Americans were especially likely to report they were worse off because of the pandemic,” the report said.

The report noted, “In an unexpected bright spot, we observed a major decrease in unbanked Black households. Black households that possessed neither a checking nor a savings account dropped to 12% in 2020 from 18% in 2019. Black households without a workplace retirement savings account also dropped to 48% in 2020 from 61% in 2019.” Morningstar said additional research is needed to determine the cause behind the decreases.