Household economic well-being is worsening as two years of high inflation on goods and services, high interest rates, and dwindling savings have left households with less to do more.
Recently, the Federal Reserve Bank released its annual Report on the Economic Well-Being of U.S. Households in 2022 and the results should be concerning for every policymaker.
American households are treading water financially and it is increasingly difficult for more families not to be dragged under by inflation or inflation-fighting efforts. Introduce an unexpected $400 emergency and many families may go under.
While the labor market remains strong with millions of open positions, holding a job is no longer enough to keep households afloat.
For this reason, IWF is launching a new tracker to provide a snapshot of household financial health each month and quarter.
By the Numbers
Here are a few stand-out insights from the Fed’s Well-Being report:
- The share of adults who were doing at least “okay” financially fell 5 percentage points from 2021 (to 73%).
- One out of three adults (35%) are worse off financially than 2021, the highest level on record.
- Fewer than two out of three adults (63%) can cover a $400 emergency expense with cash alone, down from a high of 68% in 2021.
- Fewer than one in five adults (18%) could cover an emergency expense of under $100 with savings.
- Seventeen percent of adults with income below $25,000 were unbanked compared with 1 percent of adults with income of $50,000 to $99,999
- Thirty-one percent of non-retirees thought their retirement savings plan was on track, down from 40 percent in 2021
Taking Our FInancial Temperature
While inflation has fallen from the June 2022 high of 9.1%, the consumer price index still remains higher than in 2021. Inflationary federal spending policies (including the nearly $2 trillion American Rescue Plan) caused prices to accelerate. Supplies of goods–still constrained by pandemic disruptions–and services diminished by worker shortages could not meet demand driven by households that were flush with pandemic stimulus.
Pandemic savings have largely been spent down, especially with rising inflation. Households are increasingly turning to credit accumulation. As interest rates on commercial debt rise in response to the Federal Reserve’s hike of interest rates, debt is increasingly becoming costlier.
Total household debt has risen $1.2 trillion from Q1 2022 to the same timeframe in 2023. Specific categories of debt have risen as well.
View IWF’s new Household Financial Report Card tracker above, which tracks average household balance sheet measures in one place. We will update this report regularly.