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Between a continuing global pandemic and the highest annual inflation in four decades, many Americans’ finances have suffered. According to a new NerdWallet survey, 2 in 5 Americans (40%) feel their overall financial health is worse now compared with before the pandemic, while just 21% say it’s better.
The NerdWallet survey of more than 2,000 U.S. adults conducted online by The Harris Poll asked Americans how their finances are faring now compared with before the COVID-19 pandemic, as well as what actions they’re taking in response to increasing costs. We also asked questions about the current state of the U.S. economy and identified misconceptions about the indicators of a recession and the role of the Fed when it comes to inflation.
Savings have taken a hit for many during the pandemic. The survey shows that of those Americans whose financial health is worse now than before the COVID-19 pandemic, more than a third (37%) say they’ve stopped saving and close to the same proportion (35%) have had to use emergency savings to pay for necessities.
Many have lost confidence in their personal financial health. Nearly 3 in 5 Americans (59%) say the current U.S. economy has made them feel less confident about their personal finances, with 29% saying they feel much less confident, according to the survey.
There’s confusion around the Fed’s role when it comes to inflation. About 3 in 5 Americans (58%) surveyed incorrectly believe that the Federal Reserve increases prices on goods and services by raising interest rates.
Majority are taking action to combat the impact of inflation on their finances. The survey found that 4 in 5 Americans (80%) have taken action in the past six months in response to inflation. Close to half of Americans (47%) have driven less, while around 2 in 5 (39%) have bought more store brands and unprocessed staples.
Most think we’re experiencing a recession. Over 7 in 10 Americans (71%) say the U.S. is currently in an economic recession, according to the survey.
“Early in the pandemic, Americans put COVID-19 assistance to work for them, using those resources to build savings, reduce debt and pay bills,” says Sara Rathner, a NerdWallet personal finance expert. “But that help is gone now and prices are up, and that has people worried.”
Savings have dwindled for many during the pandemic
Roughly 1 in 3 Americans (32%) say they have less in emergency savings now than they did before the COVID-19 pandemic, according to the survey. Another 43% of Americans have about the same amount of emergency savings as they had prior to the pandemic.
The survey found that 2 in 5 Americans (40%) feel their overall financial health is worse now than it was pre-pandemic. Among those who feel that way, more than half (54%) say they can’t afford the things they once could, 39% say their debt has increased and 37% have stopped saving.
While it can hurt to see less money socked away, a global pandemic is an emergency, and it’s understandable to have less saved when trying to cope financially with its far-reaching impact over the past two and a half years.
In the survey, baby boomers (ages 58-76) who say their finances are worse now compared to before the pandemic are more likely than younger generations to say investments they want to sell soon have lost value — 31%, versus 15% of Gen Zers (ages 18-25), 10% of millennials (ages 26-41) and 14% of Gen Xers (ages 42-57). The stock market is down, making it less than ideal to sell investments, an action that people at or near retirement age — like baby boomers — are more likely to take than younger Americans. Retirement is supposed to be a time of rest after one’s working years, but current market conditions may be financially stressful for retirees.
“An economic downturn can affect your financial stability after you stop working,” Rathner says. “This could be a good time to pay down debt, check in on your investments to make sure they’re diversified, and even meet with a financial advisor to get professional guidance as you make this transition into retirement.”
U.S. economy causing Americans to feel worried, stressed
Money can be emotional, and our survey found a range of feelings about the economy. Close to 3 in 5 Americans (57%) say the current state of the U.S. economy makes them feel worried, while 48% feel stressed and 34% feel sad. Positive feelings are less common, with just 13% of Americans feeling optimistic and 8% feeling confident with the current state of the U.S. economy.
Speaking of confidence, when asked about their personal finances, nearly 3 in 5 Americans (59%) say the current U.S. economy has made them feel less confident, while just 14% feel more confident. Millennials are more likely than other generations to report feeling more confident about their personal finances — 29%, compared with 13% of Gen Zers, 11% of Gen Xers and 4% of baby boomers.
It’s difficult to pinpoint why some millennials feel more confident about their finances than other generations, but it could be a combination of settling into their careers and still having a long way to go before they need retirement savings. Some millennials may be getting promotions and raises, with decades ahead of them to save for retirement and let their investments grow.
Misconceptions about the economy abound
While economics has been in the headlines recently, our survey found that some Americans have misconceptions about the U.S. economy, particularly around inflation. Three in 5 Americans (60%) incorrectly believe that high inflation and low unemployment indicate a recession. However, the inverse tends to be true — in a recession, we see rising unemployment and falling inflation.
The majority of Americans (73%) know that low supply and high demand of goods and services cause inflation. But 58% of Americans incorrectly believe that the Federal Reserve increases prices on goods and services by raising interest rates. In fact, the aim of raising rates is to slow down inflation, not add to it.
Some also have misconceptions about the real estate market: More than a third of Americans (37%) in the survey think a housing bubble is caused when there are too many homes for sale. In reality, a housing bubble can occur when homes are overvalued and is generally accompanied by a low inventory — not a high supply of available homes.
“When we don’t understand what’s going on in the economy, it can cause us to make less-ideal money decisions out of fear,” Rathner says. “What’s important is how economic circumstances are actually affecting you. What’s going on in your home might be quite different from the gloom-and-doom news that’s on 24 hours a day.”
High inflation leads many to cut costs
Prices are rising, and many are feeling the budget squeeze: Annual inflation is up 8.5% as of July 2022. In response to inflated prices, a majority of Americans (80%) have taken action over the past six months. Close to half (47%) say they’ve driven less, and about 2 in 5 (39%) have bought more store brands and unprocessed staples to keep costs down, the survey found.
Similarly, most Americans (85%) have tried to spend less on specific categories due to inflation, like dining out (52%), groceries (41%) and retail shopping (56%).
Even with these budget tweaks, nearly two-thirds of Americans (65%) are concerned about being able to cover financial obligations over the next 12 months. This includes 31% of Americans who say they’re concerned about affording groceries and other basic necessities and 29% who feel this way about paying utility bills over the next year, according to the survey.
Despite rising costs, most in the survey are planning big money moves over the next 12 months. More than 2 in 5 Americans (44%) plan to pay off debt and close to 3 in 10 (28%) plan to save more for retirement.
Most Americans think we’re currently in a recession
More than 7 in 10 Americans (71%) think the U.S. is currently in an economic recession, according to the survey. A recession hasn’t been officially declared, but it’s possible we’re experiencing one, or will in the near future.
“We may be in a recession, or we simply may be experiencing an economic slowdown that the Fed raised interest rates to create on purpose,” Rathner says. “Regardless of what’s going on more widely, there are tried-and-true actions you can take to weather the storm: Pay down debt and build emergency savings. This is a great time to check in on your longer-term money goals and make changes as needed.”
Three-quarters of Americans (75%) think we’re in a housing bubble, which generally occurs when home prices rise unsustainably fast, then fall dramatically. The housing market, fueled by speculation, zoomed, then plummeted in the 2000s. Many think we’re repeating history now, but economists don’t expect a similar downturn at this time. All that said, it’s still possible we’re in a housing bubble we’ll only recognize in retrospect.
The majority of Americans (87%) think interest rates will continue to rise over the next two years. The Fed has already raised the federal funds rate four times in 2022 in response to high inflation, and additional rate hikes are expected.
What you can do
Focus on what’s within your control. Many Americans are worried and/or stressed about the current U.S. economy. But so much of the economy — inflation, market performance and continuing supply chain issues, among other things — aren’t within our control. Take action on what you can and try your best to ignore the rest.
Take steps to improve your finances. While external factors can and do have an impact on your financial health, taking a few steps to shore up your personal money situation can help you get through tough economic conditions. Look at your budget to see if there are expenses that can be decreased or cut out, whether permanently or temporarily. You may also want to consider whether your skill set could earn you more money at a different job or a side hustle.
If you aren’t struggling to make ends meet, aim to increase your savings rate. A global pandemic and the highest annual inflation in decades have taught us that we don’t know what’s coming next, but having cash set aside for emergencies can make it easier to deal with the unexpected. You may also want to consider using a credit card with high rewards for your daily purchases, but only if you won’t carry a balance from month to month.
Check out NerdWallet’s guide on managing your money in tough times to learn more about preparing your portfolio for a recession, dealing with income loss and borrowing money during financial setbacks.
Consider financial changes from all angles. Some financial actions — like increasing your insurance deductible to lower premiums — make sense in the short term, but can be detrimental if you experience an emergency and have to put the deductible on a credit card. For this and other potential changes to your budget, consider the long- and short-term implications to your finances.
“Even in difficult times, there are still opportunities out there,” Rathner says. “Unemployment is low, so you might be able to find higher-paying work. Lower stock prices present a chance to learn more about investing. Don’t close yourself off to what’s possible.”
This online survey of 2,021 U.S. adults ages 18 and older was conducted by The Harris Poll on behalf of NerdWallet from July 14-18, 2022. The sampling precision of Harris online polls is measured by using a Bayesian credible interval. For this study, the sample data is accurate to within + 2.8 percentage points using a 95% confidence level. For complete survey methodology, including weighting variables and subgroup sample sizes, contact Sarah Borland at [email protected].