As inflation and recession concerns rise, over half of U.S. consumers say their standard of living is declining

5 ways consumer spending & saving habits are shifting, new data reveals

GREENWOOD VILLAGE, Colo., June 23, 2022 /PRNewswire/ -- U.S. consumers are feeling the squeeze of record-setting inflation, market volatility and a looming recession – and it's taking a toll. Over half (56%) of Americans say their standard of living is declining, and nearly 4 in 10 (38%) are feeling financially unhealthy, according to a new Personal Capital and Empower survey*, fielded by The Harris Poll.

With a vast majority concerned about rising inflation (85%) and a potential recession (74%) knocking their financial stability, those worries are showing up in consumers' spending, saving and investing actions. Read the full report here.

In uneasy times, Craig Birk, Chief Investment Officer at Personal Capital, advises to take the long view. "It is human nature to compare portfolio values to their all-time high, but a wider lens is usually more constructive. In a choppy market, there are plenty of opportunities to take control of your money. Knowing your net worth puts you in the driver's seat because you need a real-time measure of your financial health to make smart moves."

Bracing for the storm: as worry increases, 73% of people are taking financial action to prepare.

Americans are battening down the hatches by paying off debt more aggressively than they would otherwise (56%); socking away more in short-term (58%) and retirement savings (52%); and exploring alternative housing options (37%). To hedge against inflation, nearly half (49%) say they'll change their risk tolerance/investment approach.

Some 71% say they're cutting back on daily expenses, reining in entertainment (41%), dining out (40%), and travel (40%). But, not so fast when it comes to their favorite things: 33% say they "won't be switching to cheaper brands than I normally buy."

Consumer spending is focused on experiences, with 55% of Millennials saying they spend more time planning for vacations than retirement. 

Despite their worries, many are living it up when it comes to travel – especially Millennials. They're also the generation least likely to cut back on travel in light of inflation (35% versus 40% general population). In May, the average Personal Capital user spent** $1,304 on travel. That's 227% more than the pandemic low of April 2020 at $399 and 28% more than pre-pandemic levels of $1,017 in February 2020.

Cryptocurrency remains a gamble: crypto owners are more concerned about market volatility than those who don't own any (79% vs 68% non-owners).

Nevertheless, they're significantly more confident in their investment portfolios (81% vs 67%). As many investors grapple with how – or whether – to incorporate crypto assets, Millennials (50%) and Gen Z (49%) are disproportionately worried about its impact on their financial health, compared to the general population (33%).

Great reset…or regret? Financial confidence wavers at work.

Over half of Americans (54%) say anxiety about the current environment has impacted their work performance, and 32% are worried about the impact of returning to the office on their finances. More than half (56%) of respondents are opting for a side hustle or another alternative income stream in light of inflation, and 61% of Millennials are concerned about a possible job loss impacting their finances.

An uneasy financial climate has dulled people's salary expectations; the average salary needed to feel financially healthy dropped 13% from six months ago to $107.8K. However, the ideal income still remains higher among men ($129.5K) than women ($83.9K). Millennials and Gen Z have higher-than-average salary expectations ($133.7K and $171.6K, respectively).

Got advice? Nearly half (46%) of Americans confess they don't know how to invest.

A majority (54%) feel they're not financially optimized, agreeing, "I feel like I am losing money with it in a savings account versus being invested" and 54% say "I wish I'd gotten financial advice earlier."

Birk advises not to make any rash decisions. "Don't sell your investments in a panic. Stocks can be a secret weapon because they offer you one of the best chances to mitigate the impact of inflation and, in the long run, you're well-positioned to beat it several times over," he says.

Over the past 30 years, the average annual inflation rate has sat around 2.31%. (Current U.S. inflation is at 8.6%.) But the average historical return of the stock market over time is about 10%.

"Looking ahead, there's no crystal ball," Birk says. "History suggests equity prices are quite likely to be higher again three years from now while bonds are highly likely to provide better returns than cash. Those invested in thoughtful, diversified strategies should remain invested and focused on avoiding emotional mistakes."

Additional Findings

• There is a significant uptick in the percentage who feel "very unhealthy" financially, especially among women (26%) and those who have changed jobs in the last year (27%).
• 69% think their income isn't keeping up with inflation, but less than half (41%) are asking for a raise at work.
• The average savings needed to feel financially healthy spiked 17% in the past six months to $529.9K. Savings expectations are higher for men ($584.6K) than women ($468.7K). Men are also contributing more frequently (82%) than women (63%) to employer-sponsored retirement accounts.

Analyze your investments and track your retirement savings and net worth with Personal Capital's free financial tools, available at personalcapital.com.

*Methodology: This survey of 2,000 U.S. citizens ages 18+ was conducted by The Harris Poll on behalf of Personal Capital and Empower from April 19 to April 23, 2022. This report also references data from a study conducted from November 25 to December 11, 2021 among 2,008 adults.

**Anonymized Personal Capital dashboard data among free tools users from February 2020, April 2020, and May 2022.

About Personal Capital, an Empower Company

Personal Capital is a remote-delivery, industry-leading digital wealth management company that helps people transform their financial lives through technology and advisory services. The company's state-of-the-art technology provides consumers with a holistic financial picture and is used by over 3 million people to track $1.3 trillion in account assets (as of 1/31/22). Its wealth management advisors provide expert guidance, and customized strategies, based on a personal understanding of an investor's financial picture and goals. For more information, please visit personalcapital.com or connect with us on Facebook, Twitter, LinkedIn or Instagram.

Advisory services are offered for a fee by Personal Capital Advisors Corporation ("PCAC"), a registered investment adviser with the Securities and Exchange Commission. Registration does not imply a certain level of skill or training. Investing involves risk. Past performance is not indicative of future returns. You may lose money. PCAC is a wholly owned subsidiary of Personal Capital Corporation ("PCC"), an Empower company. PCC is a wholly owned subsidiary of Empower Holdings, LLC. © 2021 Personal Capital Corporation. All rights reserved.

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