After having collectively saved trillions during the COVID-19 pandemic, Americans are seeing inflation and other factors eating into their savings.
Americans had already spent about 35% of pandemic-era savings as of mid-January, according to an estimate by Goldman Sachs. By the end of 2023, they would have depleted about 65% of those extra savings, Goldman Sachs forecasted.
Americans put away an estimated $2.3 trillion to savings since the onset of the COVID-19 pandemic, according to research by Oxford Economics. For many Americans, those extra funds came from a combination of stimulus checks, unemployment benefits and reduced spending due to nationwide lockdown measures at different businesses.
However, inflation began to dig into Americans’ savings, reaching a 40-year peak of 9.1% in June 2022, as measured by the Consumer Price Index (CPI). America’s average savings rate was 33.8% in April 2020, according to data by the Federal Reserve Bank of St. Louis. That’s the highest savings rate since the St. Louis Fed began gathering this data in 1959. But that rate dropped to 3.4% as of December 2022.
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Inflation and recession probability expected to remain high in 2023
Although inflation has recently increased at a slower rate than in previous months, it’s still affecting people’s wallets and their savings. Inflation increased by 6% in February on an annual basis. Particularly, the price of food at home increased by 10.2% year-over-year.
A majority of Americans (93%) said 2022 was a bad year for the economy as inflation soared, according to a survey by Real Estate Witch. And 44% believe the economy is worse now than it was during the Great Recession. But as prices increased in 2022, more than half of Americans (52%) said their household income did not follow suit. And 75% said they expect a recession in 2023. Some experts agree.
“Economic downturn is likely in the U.S. as most economic indicators currently point to a deceleration at the minimum and/or probable contraction,” First National Bank of Omaha said in its 2023 Outlook report. “Aggressive Fed monetary tightening and higher interest rates may negatively impact economic growth.”
To lower inflation, the Fed has been raising interest rates and has said it expects to keep doing so in 2023. But this may have an effect on interest rates on financial products like credit cards.
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CREDIT CARD DEBT INCREASED TO RECORD $931 BILLION: HERE’S HOW TO PAY DEBT QUICKLY
Many Americans lack emergency funds
Amid recession fears and economic uncertainty, many Americans find themselves financially troubled, according to a study by Edward Jones and Morning Consult.
Almost half (43%) report they do not feel financially stable, and almost one-third (29%) have less than $500 in emergency savings funds, the survey said. Experts recommend people have three to six months of living expenses in a savings account, the report noted. Only 38% of Americans said they believe they’re emergency savings is fully funded.
“It’s perhaps unsurprising that so many Americans emphasize the importance of reaching financial wellness, especially given the turbulent times we’ve been facing, but our research reveals a huge opportunity for people to actually achieve it,” Edward Jones Senior Strategist Meagan Dow said in a statement. “Regardless of whether you have the ability to take small steps or big steps, most of us can be making progress toward building confidence and financial security, which starts with an emergency fund.”
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