Despite reports of many Americans improving their financial situations over the last two years, entering the third year of pandemic, new survey data shows that Americans are dipping into their savings more than ever to cover necessities.
In fact, the new study conducted by Qualtrics on behalf of Credit Karma found that more than half (53 percent) of U.S. respondents have had worsening finances since the pandemic began, with 38 percent of people saying the amount of money they have in savings has decreased.
These findings were especially true among Millennials and those with household incomes below $50,000. And while concern for financial situations worsening was most apparent among Millennials (64 percent) the sentiment was consistent across all cohorts including 48 percent of Gen Z, 54 percent of Gen X and 45 percent of Boomers and above.
Notably, of those respondents who said it was necessary to use money from savings at some point in 2021, 60 percent said they did so to pay bills and 59 percent said they did so to pay for other necessities.
At the same time, 12 percent of respondents reported they do not have any money in savings and those with household incomes under $50,000 were at most risk rising to 20 percent of respondents saying they do not have savings.
“We’re getting some mixed signals when it comes to the state of consumers’ finances as we enter the third year of the Covid-19 pandemic,“ said Colleen McCreary, consumer financial advocate at Credit Karma. “However, if this study is any indication, many consumers’ finances have taken a hit over the last two years and, in particular, their savings. This is a problem when you consider nearly half of all Americans don’t have $400 saved to cover an unexpected emergency.”
So how did Americans get here? In part, Credit Karma’s study indicates that as vaccines rolled out to a broad population, there was a sense of normalcy setting in which lead to many consumers spending more on dining out, travel and shopping. Combined with rising inflation the amount consumers were spending increased throughout the year.
According to the company’s survey, almost 60 percent of respondents said they spent more money in 2021 than they did in 2020 with almost half indicating feelings of regret about spending choices.
“As we enter a new year, amid an uncertain economic backdrop, rising inflation and perhaps the largest exodus from the jobs market in recent history, it’s important for consumers to consider their finances before they take action,” McCreary said. “That’s especially true for those looking to leave their jobs or make a major purchase, like buying a car or home. At the end of the day, cash is king.”
But will the new year bring new spending habits? According to those respondents who said they spent more money in 2021, 44 percent said they will plan to spend less in 2022. The most likely to pull back spending was found to be Gen Z at 53 percent, compared to 45 percent of Boomers, 42 percent of Gen X and 41 percent of Millennials.
Still, more than a fourth of respondents said they expect to spend more money in 2022, citing overspending on necessities like rent, food and other living expenses. Vacations, dining out and travel to visit family also ranked among the top reasons that consumers would “splurge” in 2022.
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