It is no secret; Americans have been branded with the label of being bad with money. By now, multiple headlines have highlighted statistics like half of Americans grappling to find $400 in an emergency or one-third of Americans carrying medical debt. However, a few years on and the financial picture is completely different for Americans these days. Not only has the pandemic led to a major rethink of personal finance but financial literacy and openness seem to be on the agenda for more households across the country. While some aspects of finances have changed in their lives, a closer examination also reveals some worrying trends on how Americans are handling their finances today.
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Financial Anxiety Is At An All-Time High
Financial stress remains high. According to a survey by NextAdvisor, 1 in 3 (34 percent) of Americans are feeling anxious about their finances while 17 percent reported feeling very anxious. Interestingly, the results are quite similar to those reported from a year prior-showing that financial anxiety has essentially not improved. In both years, 51 percent of Americans were experiencing financial anxiety. As for the reasons driving their financial anxiety, 42 percent said debt and savings were their top worry.
The Attraction Of Consumer Debt Continues
While Americans are getting better at managing their finances, there are a few key areas where they continue to lack improvement: consumer debt and financial emergency planning. The Financial Capability Study by Kiplinger showed that 56 percent of Americans have 3 months’ worth of income set aside for financial emergencies- or have built an emergency fund. Approximately 24 percent of Americans also took out a personal loan during the pandemic- proving that even in times of economic uncertainty, the allure of consumer debt continues. As for their motivation, the use of a personal loan for debt consolidation, home renovations, and medical bills were the top 3 leading reasons. Around 42 percent of them have also racked up more credit card debt in the last year, driving the heightened demand for debt consolidation as a way of getting their debt under control.
The Pandemic Led To Improved Money Management Skills
While the pandemic has exacerbated the financial challenges faced by many Americans, there are a few positives to come out of it. Northwestern Mutual’s 2021 Planning & Progress survey showed that 32 percent of Americans became more disciplined with their money. A staggering 95 percent expect the habit to stick.
This is not the only way their money management skills have improved in the last year. Before the pandemic, almost 20 percent of adults did not have a financial plan. However, 83 percent choose to revisit, readjust or create a financial plan during the pandemic. Americans have also gotten more strict with their budgeting skills- a skill that will come in handy in tackling the growing consumer debt issue.
Altogether, while they have become more aware of their financial situation and the tools at their disposal, there remain critical gaps in the financial portfolios of Americans. Sure enough, Americans are investing more, saving more, and focusing more on paying off debt. Yet, they are also taking on more high-cost debt and delaying putting aside money for emergencies. In this respect, there remains a significant way to go.