More People Are Spending Their Savings – Forbes Advisor

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US savings accounts take a double hit as Americans plunder their accounts but don’t replenish them.

Almost half (46%) of adults say they invest and save less than usual, according to the latest Forbes Advisor-Ipsos Consumer Confidence Biweekly Tracker. That’s an eight-point jump from four weeks ago and the highest level since Ipsos began collecting data in November 2021.

Meanwhile, 29% of those surveyed said they were getting more out of their savings than usual.

It’s not surprising that people are spending less while tapping into their reserves as the dollar’s purchasing power weakens. The damaging combination of inflation, aggressive Federal Reserve rate hikes and a sharp rise in household debt in the second quarter of 2022 has paved the way for major financial hurdles.

Relying on your short-term savings while battling persistent inflation may be unavoidable — and it’s probably the most responsible way to pay for essential expenses, says Andre Jean-Pierre, an investment advisor at Aces Advisors Wealth Management in New York.

Credit card debt accumulation is the real problem in a rising interest rate environment. The average interest rate on an interest-bearing credit card account was 16.65% in May 2022 (the latest available data from the Federal Reserve), two points higher than at the beginning of the year.

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“In America, where many households live paycheck to paycheck, the impact of inflation is felt every day,” says Jean-Pierre. “But adding rising interest rates by paying with credit can have a cascading effect on your financial life.”

Consumer confidence falls below pre-pandemic levels

Although Americans are feeling the lingering sting of inflation, they have been spared the defeat of a struggling job market. Throughout 2022, unemployment has remained low; It currently stands at 3.7% according to the latest employment data from the Bureau of Labor Statistics (BLS), empowering workers in an uncertain economy.

But the burden of rising housing costs, utility bills and other spending — coupled with the Federal Reserve’s bold maneuvers to combat persistent inflation — is shaking consumer confidence.

The overall confidence index of 50 (out of 100) is seven points lower than at the start of the year and ten points lower than before the pandemic.

The latest financial index, which measures confidence in personal financial health and the local economy, is 38.7-6.2 points below its pandemic and historical averages, up just one point from two weeks ago.

Likewise, the asset index is currently 40.2, 7.7 points below its historical average and 14.4 points below its pre-pandemic level. Low confidence in investing is practically a given at this point as stocks plummet, 401(k) accounts shrink, and fast-earning startups collapse.

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The labor market remains strong but could collapse under sharp interest rate hikes

The area of ​​their financial life where people remain most confident is the job market, with a score of 65.2.

49 percent of adults say they are more confident about job security for themselves, family and personal acquaintances compared to six months ago – three points up from two weeks ago.

But the robust job market could have cracks in its veneer.

The Federal Reserve raised interest rates by another three-quarters of a percentage point on September 21, promising more aggressive hikes until inflation hits its 2% target, which is likely to push unemployment numbers higher.

“If we’re going to pave the way for another period of very strong jobs,” Powell said in his post-announcement speech, “we need to get inflation behind us. I wish there was a pain free way to do this. There is not any.”

Forbes Advisor recently polled more than a dozen analysts, CEOs and economists on the job market, and more than 60% agreed that the Fed’s bullish monetary policy will eventually raise the unemployment rate.

Matthew Sassani, financial advisor at Irvine Wealth Management in Santa Clarita, Calif., says the impact of rate hikes is similar to riding a fast-moving bus. “If the bus suddenly stops, everyone falls forward.”

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The past year has been characterized by real estate appreciation, a strong stock market and generous consumer spending. “But now interest rates are eating away at purchasing power, which will affect businesses and employment, and people need to adapt,” says Sassani.

The best thing consumers can do now is prepare for a major downturn. That means holding back on large purchases — especially if you have to use a credit card.

You should also talk to your financial advisor about your investments to make sure they’re still on track to meet your short- and long-term financial goals. Do not make hasty decisions based on market fluctuations. Rebalancing your portfolio is even more important for people nearing retirement or who have a steady income.

Survey methodology: Ipsos, which surveyed 942 respondents online on September 19-20, made the results exclusively available to Forbes Advisor. The survey is conducted bi-weekly to track consumer sentiment over time, using a series of 11 questions to determine whether consumers feel positively or negatively about the current state of the economy and where it will head in the future.

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