Inflation, high interest rates, a volatile job market, and the coronavirus pandemic have made American adults more worried about money, with more Americans saying they are more worried about their finances than at any time in a decade. There is. But these people also said they still plan to spend money on eating out, vacations and other entertainment this year.
These are some of the findings from Northwestern Mutual's 2024 Plan and Progress Survey, conducted in January among 4,588 U.S. adults. One-third of respondents, 33%, said they felt financially insecure, up from 27% in 2023, according to Northwestern Mutual's 2012 Financial Security Measure. This was the highest percentage since the launch of the program. Only 41% of respondents said they felt very financially secure, the smallest percentage. Report history.
There are a number of reasons for that, Christian Mitchell, Northwestern Mutual's chief customer officer, said at the study's press conference. Although the economy is currently looking strong according to traditional indicators such as slowing inflation, falling unemployment and a booming stock market, many Americans remain concerned. Just since 2020, they have endured a pandemic that caused soaring unemployment, the highest inflation in decades, and rising interest rates. A contentious presidential election and global instability are unlikely to help matters.
“It’s hard to feel positive.”
This recency bias weighs heavily on many Americans, especially when it comes to rising prices. Inflation is a “clear factor underpinning that anxiety,” the report said, and it overshadows much of the positive economic news. More than half of U.S. adults cite it as the biggest barrier to financial security.
Inflation will reach 9% in mid-2022, the highest level in 40 years, but remains above the Federal Reserve's 2% target. Rising food and housing prices in particular are straining budgets. Grocery prices have increased by double digits over the past three years, and housing costs are higher than ever.
Although inflation has slowed recently, more than half of respondents expect it to continue rising, and just 9% of households say their income is growing at a faster pace. The Federal Reserve says Americans want prices to return to pre-pandemic levels, but that hasn't happened.
“'Financial shock fatigue' and vulnerability are driving people away from positive feelings about their financial security,” Mitchell said in a press release. “Despite a growing economy, Americans have had to endure one financial crisis after another in recent years. It's hard to feel positive when you don't know what's going to happen.” .”
Interest rate increases introduced by the Federal Reserve to combat inflation have exacerbated Americans' pessimism about the economy. Mitchell points out that for Millennials and Gen Z, borrowing money is more expensive than ever.
This is especially important to consider as total credit card debt in the United States will exceed $1 trillion for the first time in history in 2023 and continue to rise, due in part to inflation. Data from Credit Karma shows that young people are being hit the hardest.
“These consumers are becoming increasingly reliant on credit to survive,” Mark Elliott, chief customer officer at Lending Club, said recently. luck. “Higher debt levels not only hinder your ability to achieve your financial goals, but also pose long-term risks to your financial well-being and mental health.”
Additionally, it cannot be overstated how mortgage rates and rents are influencing sentiment. Median monthly mortgage payments have increased from $1,500 in 2021 to more than $2,600, and current asking rate rents have increased 30% since the start of the pandemic, according to Redfin. While more Americans are being squeezed out of the housing market, they are also paying more and more in rent each month.
And economists may actually be underestimating how much higher interest rates are hurting consumers. A new study by a group of researchers, including former Treasury Secretary Larry Summers, finds that the Bureau of Labor Statistics' official consumer price index does not fully account for the extent to which higher interest rates increase debt, particularly mortgages. It turns out there isn't. Car payments and credit card debt. When interest rate increases are factored into the new inflation measure, consumer sentiment is better aligned with rising costs of living.
The authors say, “Unlike modern economists, consumers consider the cost of money to be part of the cost of living,'' and “interest payments on a new 30-year mortgage on the average home will increase from 2021 onward.'' “It has more than tripled,” he said.
“Incorporate the moment into your plan”
At the same time, Americans aren't necessarily cutting back on spending, which is keeping the economy afloat even with high prices and interest rates. According to the report, 59% of adults say they will spend the same amount or more on discretionary purchases in 2024. Gen Z is the generation most likely to say they won't go backwards, while Gen X is most likely to reign supreme in spending.
Mitchell pointed to a recent report from the Federal Reserve that showed the net worth of people under 40 has increased the fastest since the pandemic. As a result, you may feel more confident in your spending abilities and be able to pursue other goals, such as saving and investing.
He also warned consumers not to ignore the long-term implications, noting the seeming disconnect between Americans' perceptions of their financial security and their plans to continue spending.
“Rewarding yourself with something good or an experience can feel great if it's part of a healthy financial plan, but if it's not planned, there are no emotional benefits. It doesn't last long and in some cases it can overturn,” Mitchell said. luck. “My advice is, if you want to splurge, splurge, but plan for those moments so you feel financially secure and don't feel guilty.”
