Inflation, economic instability and a lack of savings have an increasing number of Americans feeling financially stressed.
Some 70% of Americans admit to being stressed about their personal finances these days and a majority — 52% — of U.S. adults said their financial stress has increased since before the Covid-19 pandemic began in March 2020, according to a new CNBC Survey.
Feeling anxious and uncertain about managing personal finances is not uncommon. Some people may find the idea of creating a budget daunting, while others may not know where to invest their money to maximize their returns. Late starters may wonder how to save for retirement and catch up on lost time.
The fear of running out of savings can also be distressing, leading people to rely more on credit cards and accumulate more debt just to make ends meet. This is a worrying situation because debt can be challenging to manage, especially when interest rates are high.
To overcome these challenges, individuals should educate themselves on financial literacy, learn how to create a budget, and seek advice from financial experts. Investing in low-risk, high-return options and establishing a diversified portfolio can help secure a financially stable future. Additionally, starting to save early and making regular contributions to retirement accounts can provide a solid financial foundation. It is also essential to create an emergency fund to cover unexpected expenses and to manage debt responsibly by making payments on time and avoiding unnecessary spending.
Higher expenses
The cost of the basic household expenses — rent, groceries and utilities — are all higher than a year ago, weakening consumers’ purchasing power because of the inflation.
Nearly 60% of respondents cited inflation as the main contributor to their financial stress, followed by economy-wide instability (43%), rising interest rates (36%) and a lack of savings (35%).
Bank failures weaken confidence
The recent failures of Silicon Valley Bank and Signature Bank and worries about the health of the U.S. financial system have certainly added to the uncertainty. Only 13% of adults said they are very confident in America’s banking system.
About a third said the recent banking crisis made them much more concerned about their own financial security, and 42% said it made them somewhat more concerned.
Increasing cost of debt
According to the survey, a majority of Americans (58%) are barely managing to cover their expenses with their income. As a result, many individuals are turning to credit cards to bridge the gap when they come up short on cash. Furthermore, the study also revealed that almost a quarter of those surveyed attributed their financial anxiety to the burden of credit card debt.
Government data shows credit card balances are rising and delinquency rates are increasing. Household debt levels surged by $38 billion in February from a year ago, according to a report by the U.S. Federal Reserve.
Financial security eroding
The rising cost of essential goods and services, along with increasing interest rates on credit cards, auto loans, mortgages, and other debts, combined with the lack of a financial buffer, are undermining people’s sense of financial stability.
According to a survey, just 45% of adults in the United States have an emergency fund, and of those who do, approximately 26% have less than $5,000 saved.
High earners aren’t immune
Even those making $100,000 or more are feeling this uncertainty, with the majority (57%) saying they feel financially stressed.
About a third of people earning six figures said they are living paycheck to paycheck and more than a quarter said they have no emergency fund.
What to do with a windfall
About a quarter of respondents said if they had $10,000, they would invest it in a combination of stocks, bonds and savings. Putting the money in a high-yield savings account was another popular option. Only 7% would invest in the stock market and the same percentage would spend the money.
Meanwhile, just 4% of women compared to 11% of men would invest a $10,000 windfall in the stock market. Women are more likely to put that windfall in a high-yield savings account or a combination of stocks, bonds and savings, according to the survey.
Women more financially stressed than men
Women are feeling more stressed about the personal finances than men, with 72% of them saying they are financially stressed, compared to 67% of men. Women are also more likely to report they are living paycheck to paycheck and have no emergency savings.
“Women tend to be savers and look for deals and are more risk averse when it comes to investing.”
Women may experience financial stress due to lower wages and high child care expenses. Financial education may also play a role in the gender difference in financial behavior. Girls are often taught about how to save money by looking for sales and bargain hunting, while boys are encouraged to take risks and pursue entrepreneurial ventures.
This difference in upbringing could lead to women being more risk-averse when it comes to investing, preferring to save money and search for deals.
