Amid sky-high prices for everything from food to household goods, Americans are closer to their budget this year than ever before.
Only about a quarter (26%) of Americans report overspending in 2022, compared to 28% in 2021 and 32% in 2020, according to Allianz Life Insurance Company of North America’s New Year’s Resolution Study that surveyed a nationally representative sample 1,000 respondents.
But even though more people are practicing good financial habits, many Americans say their financial situation is worse than a year ago. After years of increased savings and better financial health thanks to federal pandemic stimulus programs, the average American is seeing their finances return to pre-pandemic levels, according to a new report from the Consumer Financial Protection Bureau. Younger Americans and Hispanics, as well as renters, experienced the fastest financial losses.
The new year is not looking bright either. Two out of three Americans do not expect their finances to improve in 2023, according to a new Bankrate survey. In fact, about 11% of US adults believe their finances will get “worse” in the next year. Not exactly the most optimistic view of 2023.
There is a good reason for the gloomy view. Inflation, of course, plays a major factor. Although inflation was cooler than expected in November – giving hope that the Federal Reserve’s rate hikes are having the desired effect – the cost of goods and services last month still rose by an average of 7.1% year-on-year.
More than half of those surveyed by Allianz Life (52%) said their biggest worry was that rising living costs would affect their ability to pay bills and save for the future. This is up from about 38% of respondents who felt the same by the end of 2021.
Less than half of Americans (47%) have money left over at the end of the month after paying their bills, according to November 2022 data from Deloitte’s Global State of the Consumer Tracker.
“It’s been a tough year for Americans with inflation wreaking havoc with their finances,” said Kelly LaVigne, vice president of consumer insights at Allianz Life in a statement. “These challenges won’t go away as we turn the calendar, so it’s good to have a plan in place to mitigate ongoing risks.”
In addition to inflationary pressures, if the Fed fails to adhere to the so-called “soft landing” goal of reducing inflation without causing a severe economic downturn, the US may end up in recession – an outcome that many experts predict is inevitable. point. That could lead to more layoffs and higher unemployment across the board.
Even worse, some financial experts see stagflation—in which America will contend not only with high inflation, but also high unemployment and slower economic growth—as an even greater risk.
Treasury Secretary Janet Yellen has acknowledged that there’s a chance we’ll see a recession, but she also seems more optimistic than the average American right now. “There is a risk of a recession,” Yellen said recently in an interview with CBS 60 minutes. “But it’s certainly not, in my view, what is needed to reduce inflation.”
Reduce the cost of daily goods, but it will take some time. Yellen believes the US will see “lower inflation” by the end of next year, barring “unanticipated shocks” to the system (like Russia’s invasion of Ukraine, for example).
“I am very hopeful that the labor market will remain healthy so that people can feel good about their finances and their personal economic situation,” Yellen said.
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