Inflation and interest rates have weighed heavily on Americans’ savings, and a new report from the central bank gives insight into just how much many Americans are struggling.
- The Federal Reserve’s 2022 Economic Well-Being Of U.S. Households survey revealed that 37% of Americans could not cover a $400 emergency expense.
- That number has increased five percentage points from 32% of Americans in 2021.
- These consumers would have to use credit, a loan, or sell assets to cover any large, unexpected cost.
- Around 18% of Americans said the largest emergency expense they could afford to cover with their savings was $100.
- “The 2022 survey found that self-reported financial well-being was among the lowest levels observed since 2016,” the central bank’s researchers say, adding that “higher prices have negatively affected most households.”
Why it’s news
Interest-rate increases and persistent inflation were undoubtedly causing strain on the average household’s budget, but the recent report gives a better picture of how exactly higher prices are affecting consumers.
Unemployment remains at a 54-year low as of April, Fortune reports. In 2022, nearly one-third of U.S. adults were either promoted or received a raise. Yet 35% of Americans indicated that they are worse off financially this year than they were last year, according to the survey.
Despite raises and promotions, Americans were still not making enough to keep up with inflation. Over the last year, real average hourly wages declined 0.5%, according to a report from the Bureau Of Labor Statistics. The Fed also found that more consumers reported spending increases than pay increases.
As consumers are forced to pay more for everyday goods, fewer can afford to put money into savings. Only 31% of non-retired respondents said that their retirement savings plan had not been disrupted, Fortune reports.
High costs without matching wages are starting to affect overall spending, too. Consumer spending has remained strong despite inflation over the last couple of years, but that may soon change. Big ticket items are less common purchases now as consumers look to avoid sudden large costs.
In the survey, 85% of Americans reported that they are concerned about inflation’s effect on their finances. Customers will likely continue to make tradeoffs in spending decisions to save money for household expenses.