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US savings accounts are taking a hit while Americans are raiding their accounts, but not filling them up.
Nearly half (46%) of adults say they invest and save less than usual, according to the latest bi-weekly tracker from Forbes Advisor-Ipsos Consumer Confidence. It’s an eight-point jump from four weeks ago and the highest level since Ipsos started tracking data in November 2021.
Meanwhile, 29% of respondents said they draw more from their savings than usual.
Unsurprisingly, people move less as they dip 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 increase in household debt in the second quarter of 2022 paved the way for major financial hurdles.
Relying on your short-term savings while battling persistent inflation may be unavoidable and is arguably the most responsible way to pay for the necessary expenses, says Andre Jean-Pierre, investment advisor at Aces Advisors Wealth Management in New York.
Piling up credit card debt is the real problem in a rising interest rate environment. The average interest rate on a credit card account that assessed interest was 16.65% in May 2022 (the latest data available from the Federal Reserve), two points higher than at the beginning of the year.
“In America, where many families live from pay to pay, the impact of inflation is felt every day,” says Jean-Pierre. “But adding increasing interest by paying with credit can have a cascading effect on your financial life.”
Consumer confidence falls below pre-pandemic levels
Although Americans feel the constant sting of inflation, the defeat of a struggling labor market has been spared. Unemployment remained low throughout 2022; it’s currently at 3.7%, according to the latest Bureau of Labor Statistics (BLS) job data, empowering workers in an uncertain economy.
But the weight of rising housing costs, energy bills and other expenses, coupled with bold moves by the Federal Reserve to combat continued inflation, are shaking consumer confidence.
The overall confidence index of 50 (out of 100) is seven points lower than at the beginning of the year and 10 points lower than before the pandemic.
The current financial index, which measures confidence in personal financial situations and the local economy, is 38.7-6.2 points below its pandemic and historical average, gaining just one point from two weeks ago. .
Likewise, the investment index, currently at 40.2, is 7.7 points lower than the historical average and 14.4 points below the pre-pandemic level. Low investment confidence is pretty much taken for granted at this point, with stocks rising, 401 (k) accounts falling, and quick-cash startups folding.
The job market continues to remain strong, but could give way to sharp rate hikes
The area of their financial life where people continue to be safest is the job market, with a reading of 65.2.
Forty-nine percent of adults say they are more confident about job security for themselves, their family, and their personal connections than they were six months ago, three points higher than two weeks ago.
But the robust job market may have cracks in its patina.
The Federal Reserve raised target rates by another three-quarters of a percentage point on Sept. 21 and promises more aggressive hikes until inflation hits the 2% target, which is likely to boost unemployment numbers.
“If we want to pave the way for another very strong job market period,” 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. ‘is.
Forbes Advisor recently asked more than a dozen analysts, CEOs and economists about the job market, and over 60% agreed that the Fed’s bullish monetary policy will ultimately raise unemployment rates.
Matthew Sassani, a financial advisor at Irvine Wealth Management in Santa Clarita, California, says the effects of rate hikes are very similar to traveling on a fast-moving bus. “When the bus suddenly stops, everyone falls forward.”
Last year was characterized by the appreciation of the real estate sector, a strong stock market and generous consumer spending. “But now interest rates are consuming purchasing power, which will affect businesses and employment, and people have to adjust,” Sassani says.
The best thing consumers can do now is prepare for a major recession. This means holding onto large purchases, especially if you have to use a credit card.
You should also speak to your financial advisor about your investments to make sure they are still on track to achieve your short and long term financial goals. Don’t make hasty decisions based on market fluctuations. Shuffling your wallet is even more critical for people close to retirement or with a fixed income.
Survey methodology: Ipsos, who interviewed 942 respondents online on September 19 and 20, provided the results exclusively to Forbes Advisor. The survey is conducted every two weeks to track consumer sentiment over time, using a series of 11 questions to determine whether consumers are feeling positively or negatively about the current state of the economy and where it appears to be going in the future.