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US savings accounts take a double whammy as Americans raid their accounts, but don’t renew them.
Nearly half (46%) of adults say they invest and save less than usual, according to the latest Forbes Advisor-Ipsos Consumer Confidence Biweekly Tracker. This is an eight-point jump from four weeks ago and is the highest since Ipsos began tracking data in November 2021.
Meanwhile, 29% of those surveyed said they were withdrawing more from their savings than usual.
Not surprisingly, people are turning away less while indulging in their reserves as the purchasing power of the dollar weakens. The pernicious combination of inflation, sharp interest rate hikes by the Federal Reserve, and a big jump in household debt in the second quarter of 2022 set the stage for significant fiscal hurdles.
Relying on your short-term savings while battling persistent inflation can be inevitable — and likely the most responsible way to pay for necessary expenses, says Andre Jean-Pierre, investment advisor at Aces Advisors Wealth Management in New York.
Accumulating credit card debt is the real problem in a high interest rate environment. The average interest rate on the credit card account at which the interest was 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 America, where many families live from paycheck to paycheck, the effect of inflation is felt daily,” says Jean-Pierre. “But adding increased interest by paying with credit can have a ripple effect on your financial life.”
Consumer confidence is sinking below pre-pandemic levels
Although Americans are feeling the pinch of persistent inflation, they have been spared the defeat of the faltering labor market. Throughout 2022, unemployment remained low; It currently stands at 3.7%, according to the latest Bureau of Labor Statistics (BLS) job data, giving workers leverage in an uncertain economy.
But the burden of rising housing costs, energy bills and other expenses – along with Bold maneuvers of the Federal Reserve to combat persistent inflation– shake 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 indicator, which measures confidence in personal financial conditions and the domestic economy, is at 38.7 – 6.2 points below the epidemiological and historical averages, gaining just one point two weeks ago.
Similarly, the investment index, which is currently 40.2, is 7.7 points lower than its historical average and 14.4 points lower than its level before the pandemic. Low confidence in investments It’s practically a given at this point, with stocks plummeting, 401(k) accounts shrinking and rapidly folding up startups.
The labor market continues to remain strong, but may falter in the face of sharp price increases
The area of their financial life where people continue to be more confident is Labor marketBy reading 65.2.
Forty-nine percent of adults say, compared to six months ago, that they are more confident about job security for themselves, their families, and personal acquaintances—three points higher than it was two weeks ago.
But the strong job market may have cracks in its shell.
The Federal Reserve raised its target rates by another three-quarters of a percentage point on September 21 and promised more aggressive increases until inflation hits its 2% target, which will likely boost unemployment numbers.
In his speech following the announcement, Powell said, “If we want to light the way to another period of a very strong labor market, we have to put inflation behind us. I wish there was a painless way to do it. There isn’t.”
Forbes Consultant recently asked More than a dozen analysts, chief executives and economists on the labor market, and more than 60% agreed that the Federal Reserve’s bullish monetary policy will eventually increase unemployment.
The effects of higher prices are a lot like traveling on a fast-moving bus, says Matthew Sasani, a financial advisor at Irvine Wealth Management in Santa Clarita, California. “When the bus stops suddenly, everyone falls forward.”
The past year has been marked by soaring real estate prices, a robust stock market and generous consumer spending. “But now interest rates are eroding purchasing power, which will affect business and employment, and people will have to adapt,” Sasani says.
The best thing consumers can do right now is prepare for a major downturn. This 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 ensure that they remain on track to meet your short and long-term financial goals. Don’t make hasty decisions based on market fluctuations. Rearranging your portfolio is more important for people who are close to retirement or who are on a fixed income.
Survey Methodology: Ipsos, which polled 942 participants 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 feel positive or negative about the current state of the economy and where it is headed in the future.