Average Americans Were Worse Off In 2022

Importance of a well being survey

We have surveys for prices, costs, income but few surveys for well-being. In the latest survey on human well being conducted by the US, interesting insights emerge. It looks like Americans believe they were worse off in 2022 as compared to 2021. Let us start with the macro picture first. According to the Survey of Household Economics and Decision making (SHED) for 2022, the overall financial well-being of the American population fell markedly in 2022 as compared to 2021. Based on the findings of the survey of adult households, only 73% of adults in the US said they were, at least doing OK financially, compared to 78% saying that in 2021. However, the share of adults who said that they were financially worse off in 2022 compared to 2021 increased from 33% to 35%; the highest since 2014. 

Income levels and employment in year 2022

The SHED survey shows that American families find themselves more vulnerable. In 2022, more adults experienced spending increases compared to income increases. Nearly 40% of adults surveyed admitted that their family monthly spending had sharply increased in 2022. Only 33% of the respondents held this view in the year 2021. The good news was the strong job market where 33% of the respondents saw monthly incomes increase in 2022 while nearly 23% of the adults surveyed admitted that spending levels had gone up but their income had not. 

Can Americans handle a financial crisis?

According to the SHED survey, the job market continued to be robust in 2022 and that was the good news. nearly 33% of all American adults had got a salary hike or a promotion in 2022 and with 13% demanding a pay hike or promotion. In comparison, if you look at the 2021 survey, only 30% admitted to getting a raise in their salary while only 9% asked for a hike or a promotion. 

What about the ability of people to handle financial emergency in 2022? High inflation had a negative impact in 2022 on financial well-being. Just 63% of the adults surveyed admitted that they could easily cover a hypothetical $400 emergency expense with cash on hand. This figure was as high as 68% in 2021. In 2022, nearly 67% of American adults stopped using a pricier product or used less of the same due to inflation. This figure was just 64% in the year 2021. Inflation has clearly pinched American households on multiple fronts in 2022.

What is the impact on bank credit and housing?

There is something interesting that has come up in the survey. Despite the US being the breeding ground for financial innovation, there is a general aversion towards such exotic financial instruments in the US. Just to illustrate; the use of cryptocurrency for transactions and BNPL (Buy Now, Pay Later) schemes continue to be very low in the US compared to traditional payment and credit methods, so conservatism in money still rules. Only 3% of American adults used cryptocurrency for financial transactions while just about 12% of American households use BNPL schemes to fund purchases. They are clearly playing it safe.

Let us turn to housing in the survey. In most cases, it was financial constraints that were often the reason for people preferring to rent accommodation. Nearly 67% of the renters surveyed admitted that their inability to afford a down payment to buy a home was a reason for renting. Several renters admitted that they had trouble keeping up with timely rent payments due to a spike in rentals.

Higher education and retirement planning

These are two very important aspects of American households. The traditional American dream has always been about leveraging a good education to improve prospects of earning more and ensuring financial well-being. Nearly 70% of adults with at least a bachelor’s degree, admitted that the financial benefits of their education had exceeded the cost. More importantly, in the US most students fund their own education using education loans. The survey found that the relative difficulty in handling and servicing student loans varied by the level of education completed. Those who had completed at least a bachelor’s degree with a student loan displayed higher earnings potential and hence showed less probability of falling behind on payments. That should give some comfort to US households.

Finally, let us look at what are the findings of the SHED survey on retirement and saving goals of American households. In the year 2022, the survey showed relatively tardy progress towards retirement savings goals. In 2022, only 31% of non-retirees felt that their retirement savings plans were on track, as compared to 40% being optimistic about retirement plans in 2021. Clearly, higher inflation and rising uncertainty have made people less optimistic about the ability of their retirement corpus to deliver the goods. The good news is that a whopping 79% of the retirees surveyed in the SHED survey, admitted they were doing OK financially. However, this feeling of financial well-being was contingent on retirees getting income from sources like wages, pensions, or investments.

Some ideas for India too

The survey is a great idea to measure how changing macros have impacted median well-being among households. By considering income, spending, savings, debt, and financial planning; the SHED survey is a good way to capture the gist of household finances. It is time that even India undertakes such an extensive survey of households. Data may be large and stratified due to diversities, but the insights would be useful and incisive, nevertheless.

Content Source: Federal Reserve