New Financial Resilience Index Finds Cost Pressures Easing but Still Weighing on American Middle Class

Middle-class households are still adjusting to higher cost of living, while income growth and strong stock market bolster wealth and retirement savings, finds January 2025 Index

WASHINGTON, Jan. 22, 2025 /PRNewswire/ -- The American Council of Life Insurers (ACLI) today released its January 2025 Financial Resilience Index measuring middle-class households' ability to manage financial challenges and plan for a stable future. The Index analyzes key middle-class economic considerations to assess the direction and degree of change in middle-class financial resilience. The index uniquely analyzes the interplay between typical cost pressures for middle-class households and the resources available to meet those costs, including income, access to credit and retirement assets.

The January Index results show that in Q3 2024, while inflation continues to moderate, middle-class households are still adjusting to higher costs. However, solid income growth continues to help middle-class households cope with higher costs, and a strong stock market expanded middle-class wealth and retirement savings in 2024.

"Life insurers are focused on helping middle-class households, which is why we created the Index to track how these households are doing financially," said ACLI President and CEO David Chavern. "We often see a safety net gap in middle-class households that leaves them uniquely vulnerable to economic shifts. Through this unique benchmark, we're able to measure the direction and degree of change of middle-class financial resilience – in other words, a middle-class household's ability to manage life's challenges and plan for a stable future."

January 2025 Financial Resilience Index Report

In Q3 2024, the Headline Index, the score used to measure household resilience, was 31.8, up 7 points from the previous quarter and up 18 points from Q3 of last year. These figures indicate middle-class financial resilience is continuing on an upward trajectory and that the pace accelerated this past quarter.

Inflation has eased considerably since its peak in 2022, and cost pressures are continuing to approach historical norms. However, middle-class Americans are still grappling with higher costs and are particularly impacted by high housing and childcare costs. As inflation goes down, wage growth has also declined but remains well above the historical average for middle-class earners. Strong stock market performance in Q3 increased middle-class retirement readiness as retirement assets grew, and spurred growth in non-retirement wealth as well, providing additional financial cushion.

The Financial Resilience Index's accompanying survey – a nationally representative survey conducted quarterly by The Harris Poll – gives a snapshot of how middle-class households are feeling about the state of their finances. The survey explores how middle-class respondents understand their own financial resilience by asking questions about economic mobility, financial stressors, financial stability, and safety nets.

Key findings reveal that just over half (52%) of middle-class households are confident or very confident they could bounce back from an unexpected expense of $5,000, and that over a third of middle-class households (34%) have more than six months of living expenses in easily accessible savings.

However, one-in-five middle-class households (20%) have less than one month of living expenses in accessible savings – and some demographic groups are faring worse than others. Half of rural middle-class households (50%) have 3 or fewer months of living expenses in easily accessible savings compared to 37% of urban households and 38% of suburban ones. And fewer middle-class households with children are confident or very confident they could bounce back from an unexpected expense of $5,000 (43%) than ones without children (56%). More than one-in-four of middle-class households with children (28%) have less than 1 month of living expenses in easily accessible savings compared to 16% of ones without children.

On the other hand, middle-class seniors – those 65 and older – as well as small business owners, show greater financial resilience and report higher savings compared to other middle-class demographics. More than two-thirds of middle-class seniors (68%) are confident or very confident their household could bounce back from an unexpected expense of $5,000 and more than half of middle-class seniors (54%) have more than 6 months of living expenses in easily accessible savings. For middle-class small business owners, 42% have more than 6 months of living expenses in easily accessible savings.

"It's really resource growth that has allowed the middle class to weather the past few years of inflation highs. The flipside of easing inflation has been slower wage growth. However, middle-class wages remain well above historical averages and are a key source of financial resilience," said ACLI Chief Economist Andrew Melnyk. "While inflation has gone down considerably, it remains a bit sticky. If incomes and assets continue to grow, easing inflation would only help alleviate the burden that higher costs of living have placed on America's middle class."

About the Financial Resilience Index
ACLI's Financial Resilience Index, which is released quarterly, measures the middle-class' ability to manage life's challenges and plan for a stable future. The index tracks 26 different variables that represent typical cost pressures for middle-class households (like housing, gas and childcare) and the financial resources that are available to meet them (like income, access to credit and retirement assets). By tracking the direction and magnitude of cost pressures and resources, the index reflects how middle-class financial resilience changes over time, and what is driving improvement or decline.

About the Financial Resilience Survey
ACLI's Financial Resilience Survey is a nationally representative survey conducted by The Harris Poll on behalf of ACLI, as a complement to the Financial Resilience Index. The survey explores how middle-class respondents understand their own financial resilience by asking questions about economic mobility, financial stressors, financial stability, and safety nets. The quarterly survey consists of two questions about financial resilience, one recurring question that will be asked at the same time each year and one that will vary within the larger theme of middle-class financial health, stress, and resilience. Respondents of all household income levels respond to the survey, with reporting focused on middle-class respondents – those earning $50,000-$150,000 in annual household income.

ACLI's latest Financial Resilience Survey was conducted online within the United States by The Harris Poll on behalf of ACLI from December 5 – 9, 2024 among 2,092 adults ages 18 and older. The survey sample includes 1,057 respondents from middle-class households. For complete survey methodology, including weighting variables and subgroup sample sizes, please contact ACLI.

For more information about both the index and the survey please visit: Financial Resilience Index.

The American Council of Life Insurers (ACLI) is the leading trade association driving public policy and advocacy on behalf of the life insurance industry. 90 million American families rely on the life insurance industry for financial protection and retirement security. ACLI's member companies are dedicated to protecting consumers' financial wellbeing through life insurance, annuities, retirement plans, long-term care insurance, disability income insurance, reinsurance, and dental, vision and other supplemental benefits. ACLI's 275 member companies represent 93 percent of industry assets in the United States.

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SOURCE American Council of Life Insurers