4 findings that reveal the financial state of Americans

June 23, 2023 2:02 PM

The U.S. economy has been turbulent at best, as consumers watched the Federal Reserve try to control inflation with 10 consecutive interest rate hikes in the last year. Unsurprisingly, Americans aren't too optimistic about their financial future.

Financial services company Northwestern Mutual surveyed 2,740 Americans on their expectations for the U.S. economy in the next half of 2023, and it's clear people are anxious. In fact, 67% of Americans expect the economy to enter a recession later this year, with 75% believing it will have a moderate or high impact on their long-term finances.

"With COVID and a lot of the funds that were introduced into the economy, it delayed a recession that probably could have already occurred," says Kurt Rupprecht, an adviser with Northwestern Mutual. "Everyone expects that we will likely experience a recession soon, although it won't be relatively deep and prolonged."

While Rupprecht predicts the recession will be mild, especially in comparison to 2008, many Americans remain cautious about their finances this year. Here are four findings from Northwestern Mutual's survey that reveal how Americans are approaching an uncertain economy.

Cutting costs

According to Northwestern Mutual, 64% of Americans are cutting costs in their day-to-day lives, 50% are focused on building up their savings and 41% are delaying large purchases. Rupprecht notes that between the rising cost of living and record-high interest rates, this is more than expected — many Americans will be hesitant to spend on non-essentials.

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"If people have big expenses coming up, like a home renovation project, they probably want to think about it a bit more before starting," he says. "On the other hand, people may have to tap into their savings because they lose a job or because of inflation's impact on their household."

Saving up

Northwestern Mutual also found that Americans' personal savings went up by nearly 5% this year, from $62,000 to $65,100 per respondent. However, Americans still couldn't keep up with the 2022 inflation rate of 6.5%. For Rupprecht, this further emphasizes how Americans are being cautious spenders as they work to build a financial cushion this year.

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"This means seeing a reduction in consumption patterns that people may have had previously and people feeling that recessionary-driven fear," says Rupprecht. "Ultimately, having money to allocate towards goals or concerns on the horizon is super important, and that's not lost on everyone."

Keeping inflation top of mind

Inflation was Americans' top financial concern of the year, with 51% voting it number one — the recession wasn't even a close second at 26%, according to Northwestern Mutual. While inflation slowed in May, marking the lowest rate in two years at 4%, household expenses are still high.

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A lower rate of inflation may mean more Americans have time to catch up or adjust their budgets, but prices are still going up and outpacing wages. Financial advisory Willis Towers Watson found that while salaries grew by 4.2% by the end of 2022, they couldn't keep up with the inflation rate of 6.4%. Rupprecht underlines that Americans will need time to recover.

Gen Z and millennials are feeling the impact

Compared to Gen X and Baby Boomers, Millennials and Gen Z found themselves more likely to put their lives on pause in response to the U.S. economy. For example, Northwestern Mutual found that 23% of Gen Z and 18% of Millennials postponed buying or building a new home, while 29% of Gen Z and 19% of Millennials delayed changing jobs or looking for a new one. On the other hand, only 12% of Gen X and 6% of boomers have postponed buying a home and only 10% of Gen X and 3% of boomers have paused their job hunt.

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Still, Rupprecht encourages younger Americans to stay optimistic — the economy won't be like this forever.

"You might be thinking, "Am I ever going to buy a house?'" says Rupprecht. "By no means do I think the interest rate environment for homebuyers and beyond will stay in its current backdrop in perpetuity. It's going to be a changing landscape going forward."