Americans are not optimistic about their finances in 2023
With sky-high prices for just about everything from groceries to utilities to housing, Americans have been tighter on their budgets this year than in the past.
Only about a quarter (26%) of Americans reported overspending in 2022, compared with 28% in 2021 and 32% in 2020, according to Allianz Life Insurance Company of North America’s New Year’s Resolutions Study, the one nationwide representative sample of 1,000 respondents surveyed.
But even though more people are practicing good financial habits, many Americans said their financial situation is worse than it was a year ago. After several years of increased savings and better financial health thanks to nationwide pandemic stimulus programs, average Americans have seen their finances slip back to pre-pandemic levels, according to a recent Consumer Financial Protection Bureau report. Younger and Hispanic Americans and renters experienced the fastest decline in their financial health.
The new year isn’t looking too rosy either. According to a recent Bankrate poll, two in three Americans don’t expect their finances to improve in 2023. In fact, about 11% of US adults believe their finances will “deteriorate significantly” over the next year. Not exactly the most optimistic outlook for 2023.
There are enough reasons for the bleak prospects. Inflation, of course, plays a major role. Even though inflation fell more-than-expected in November – giving hope to the notion that Federal Reserve rate hikes are having the intended effect – the cost of goods and services over the last month is still down an average of 7.1 year-on-year % gone up.
More than half of Allianz Life respondents (52%) say their top concern is that the rising cost of living will affect their ability to pay their bills and save for the future. That’s up from about 38% of those who thought similarly at 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.
“This has been a tough year for Americans as inflation has ravaged their finances,” Kelly LaVigne, vice president of consumer insights at Allianz Life, said in a statement. “These challenges will not go away if we turn the calendar, so it’s best to have a plan in place to mitigate ongoing risks.”
Adding to inflationary pressures, the US could be headed for a recession if the Fed fails to deliver on its so-called “soft landing” goal of bringing inflation down without causing a severe economic downturn — an outcome many pundits believe is inevitable period. That could lead to more layoffs and higher unemployment across the board.
Worse, some financial experts see stagflation — in which Americans struggle not only with high inflation but also high unemployment and slower economic growth — as a greater risk.
Treasury Secretary Janet Yellen concedes that there is definitely a chance of a downturn, but she also seems more optimistic than the average American these days. “There’s a risk of a recession,” Yellen said in a recent interview with CBS 60 minutes. “But in my opinion it’s certainly not something that’s necessary to bring inflation down.”
However, reducing the cost of daily necessities will take time. Yellen believes the US will see “much lower inflation” by the end of next year barring “unforeseen shocks” to the system (such as the Russian invasion of Ukraine).
“I’m very hopeful that the job market stays reasonably healthy so that people can feel comfortable with their finances and their personal economic situation,” Yellen said.
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