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US savings accounts are getting a double whammy as Americans are raiding their accounts, but not replenishing them.
Nearly half (46%) of adults say they are investing and saving less than usual, according to the latest Forbes Advisor-Ipsos Biweekly Consumer Confidence Tracker. That’s an eight point jump from four weeks ago and the highest level since Ipsos began tracking the data in November 2021.
Meanwhile, 29% of those surveyed said they are drawing more from their savings than usual.
It’s no wonder people are draining less and tapping into their reserves as the dollar’s purchasing power weakens. The pernicious combination of inflation, aggressive interest rate hikes by the Federal Reserve, and a significant rise in household debt in the second quarter of 2022 has paved the way for significant financial headwinds.
Leaning on your short-term savings while battling persistent inflation may be unavoidable, and it’s likely the most responsible way to pay for necessary expenses, says Andre Jean-Pierre, investment adviser at Aces Advisors Wealth Management in New York.
Piling up credit card debt is the real problem in an environment of rising rates. The average interest rate on a credit card account with interest assessed was 16.65% in May 2022 (latest data available from the Federal Reserve), two points higher than at the beginning of the year.
“In the United States, where many households live paycheck to paycheck, the impact of inflation is felt daily,” says Jean-Pierre. “But adding mounting interest when paying with credit can have a cascading effect on your financial life.”
Consumer confidence sinks below pre-pandemic levels
Although Americans feel the continuing sting of inflation, they have been spared defeat by a struggling labor market. Throughout 2022, unemployment has remained low; it is currently at 3.7%, according to the latest employment data from the Bureau of Labor Statistics (BLS), empowering workers in an uncertain economy.
But the weight of rising housing costs, energy bills and other expenses, along with the Federal Reserve’s bold moves to combat continuing inflation, is shaking consumer confidence.
The overall confidence index of 50 (out of 100) is seven points lower than it was at the beginning of the year and 10 points lower than it was before the pandemic.
The current financial index, which measures confidence in personal financial situations and the local economy, is between 38.7 and 6.2 points below its pandemic and historical averages, gaining just one point from two weeks ago.
Likewise, the investment index, currently at 40.2, is 7.7 points below its historical average and 14.4 points below its pre-pandemic level. Low investment confidence is pretty much a given right now, with stocks crashing, 401(k)s shrinking, and fast-money startups falling.
The Labor Market Remains Strong, But Could Soften Under Strong Rate Hikes
The area of their financial lives where people remain most confident is the job market, with a reading of 65.2.
Forty-nine percent of adults say that compared to six months ago, they are more confident about job security for themselves, their family and personal acquaintances, up three points from two weeks ago.
But the strong job market could have cracks in its veneer.
The Federal Reserve raised target rates by another three-quarters of a percentage point on September 21 and promises more aggressive hikes until inflation reaches its 2% target, which is likely to boost unemployment numbers.
“If we want to light the way into another period of a very strong job market,” Powell said in his speech after the announcement, “we have to put inflation behind us. I wish there was a painless way to do it. There isn’t.
Forbes Advisor recently asked more than a dozen analysts, CEOs and economists about the labor market, and more than 60% agreed that the Fed’s dovish monetary policy will eventually increase unemployment rates.
Matthew Sassani, a financial advisor at Irvine Wealth Management in Santa Clarita, California, says the effects of rate increases are a lot like riding a fast-moving bus. “When the bus suddenly stops, everyone falls forward.”
Last year was marked by real estate appreciation, a strong stock market and generous consumer spending. “But now interest rates are affecting purchasing power, which will affect business and employment, and people have to adjust,” says Sassani.
The best thing consumers can do now is prepare for a major recession. That means putting off big purchases, especially if you have to use a credit card.
You should also talk to your financial advisor about your investments to make sure they stay on track to meet your short- and long-term financial goals. Don’t make hasty decisions based on market fluctuations. Reorganizing your portfolio is even more critical for people nearing retirement or on a fixed income.
Survey methodology: Ipsos, which surveyed 942 online respondents on September 19 and 20, provided the results exclusively to Forbes Advisor. The survey is conducted bi-weekly to track consumer sentiment over time, using a series of 11 questions to determine whether consumers feel positively or negatively about the current state of the economy and where it is headed in the future. .