The current inflationary economy is having a deleterious impact on the financial and emotional wellness of many Americans, according to four recently published data reports.
Pandemic-Era Grief
A new NerdWallet survey of more than 2,000 adults found 40% of respondents stating their overall financial health is worse now compared with before the pandemic, while 21% said it was better. For many people, savings have taken a hit during the pandemic ”” more than one-third of respondents (37%) reported using emergency savings to pay for necessities.
Furthermore, many have lost confidence in their personal financial health ”” roughly three in five respondents (59%) said the current U.S. economy has made them feel less confident about their personal finances, with 29% saying they feel much less confident. And more than seven in 10 respondents 71% said the U.S. is currently in an economic recession.
The NerdWallet survey also found four in five respondents (80%) took action in the past six months in response to inflation, with nearly half (47%) driving less than before and around two in five (39%) buying more store brands and unprocessed staples.
“Early in the pandemic, Americans put COVID-19 assistance to work for them, using those resources to build savings, reduce debt and pay bills,” said Sara Rathner, a NerdWallet personal finance expert. “But that help is gone now and prices are up, and that has people worried.”
But the NerdWallet survey also revealed significant misconceptions about how many Americans understand the workings of the U.S. economy. Three in five respondents (60%) incorrectly believed that high inflation and low unemployment indicate a recession ”” the inverse tends to be true, as a recession is an environment with rising unemployment and falling inflation.
Also, 58% of Americans incorrectly believed that the Federal Reserve is responsible for increasing prices on goods and services by raising interest rates ”” in fact, the aim of raising rates is to slow down inflation, not add to it ”” and more than one-third of respondents (37%) thought a housing bubble is caused when there are too many homes for sale, when actually a housing bubble can occur in a market where homes are overvalued and in short supply.
“When we don”™t understand what”™s going on in the economy, it can cause us to make less-ideal money decisions out of fear,” Rathner observed. “What”™s important is how economic circumstances are actually affecting you. What”™s going on in your home might be quite different from the gloom-and-doom news that”™s on 24 hours a day.”
Deeper in Debt
J.D. Power polled 4,000 retail bank customers for a survey related to inflation, with 70% of respondents stating prices have been increasing faster than their incomes. The survey also determined that more Americans have started using their credit cards to help carry the onerous financial burden they now face, even though carrying higher balances for extended periods will have a negative effect on their credit ratings.
“Customers whose financial health is stressed are most likely to agree that their credit score helps with more than getting a loan/borrowing money (75%) and, to that end, 41% of customers have a personal goal to improve their credit score in the next 12 months. That includes half of the vulnerable population and 48% of those under age 40,” said the company in announcing its survey results.
J.D. Power also noted that although banks offer budgeting and debt assistance, many customers do not take advantage of this assistance.
“One of the most challenging feats to accomplish in business is changing customer behavior,” the company added. “But in this instance, customers are ready to change. The problem is that they”™re rudderless and unable to define where to direct their efforts. Banks need to be able to effectively steer customers into programs that can help with each unique individual financial situation.”
In Case of Emergency
Separately, the recently published 13th edition of the “Reality Check: Paycheck-To-Paycheck” research series from LendingClub Corp. and PYMNTS.com contradicted the long-held Federal Reserve projection that Americans need to have $400 put aside for dealing with emergency expenses. The new report, which polled roughly 4,000 adults, found nearly half of Americans (46%) have faced at least one unexpected expense in the last 90 days and 56% of emergency expenses cost more than $400 ”” to be precise, the consumers”™ average emergency expense was approximately $1,400.
The survey determined that common emergency expenses ranged from car repairs to health-related and housing and relocation expenses ”” the latter had the highest average cost at $2,042, and 19% of consumers faced this type of expense.
“The need to update the $400 emergency expense benchmark is evident in this report,” said Anuj Nayar, LendingClub”™s financial health officer. “Inflation in the last year, let alone the last decade, has made it much more difficult for consumers to save while staying on top of their expenses. Not only are consumers saving less every month, but they are likely to encounter an emergency expense, if not multiple, putting them at a greater risk for increased financial hardship. This fact paves a financially difficult road ahead for consumers.”
This study also determined that more than half of all U.S. consumers (59%) currently live paycheck to paycheck ”” during the past year, the share of consumers earning $100,000 or more annually and living paycheck to paycheck has risen nine percentage points to 43%.
Parental Anxiety
As for Americans with children under the age of 18, the National Retirement Institute”™s recent survey of 1,000 parents found only 48% of respondents stating they were on track to meet their financial goals with 60% of respondents citing inflation or rising living costs as being their most pressing financial concerns for the next 12 months.
Less than half of respondents (45%) carried a positive perception of their family”™s financial situation, and 88% were expecting an economic downturn in 2023. And while the majority of respondents wanted help in addressing their family”™s finances, more were calling on family and friends (56%) instead of a financial planning professional (27%) for advice.
“With the cost of living high and fear of a recession looming, parents”™ confidence in their family”™s financial situation is waning,” says Kristi Rodriguez, senior vice president of Nationwide Retirement Institute. “It”™s understandable that families are looking for comfort during this difficult time, whether with friends and family or through their faith, but the most important step they can take is to connect with a financial professional and create a plan.”
