Americans lost a lot of financial ground last year. Is the worst over?
Americans have been falling behind financially over the last year. Two reports released Thursday show just how much.
The share of Americans who feel financially healthy declined by a whopping nine percentage points in March from a year ago, according to a J.D. Power 2023 U.S. Retail Banking Satisfaction Study, while the percentage of consumers who feel financially vulnerable increased by eight percentage points.
Add to that a chart from Evercore ISI Research and the picture is even grimmer.
It (below) shows how the excess savings Americans built up during the pandemic continues to shrink, falling to levels similar to the third quarter of 2020.
Still, there are signs the worst could be over as inflation continues to ease and the job market remains robust.
“We have seen a pretty steep decline in financial health in consumers. There’s a lot more financial stress on consumers, and yes, it’s inflation — [loss of] Covid supports plus inflation,” Paul McAdam, senior director of banking at J.D. Power, told Yahoo Finance. “But consumers’ financial health has stabilized these last few months, so that is positive.”
The big reason folks are feeling more financially stressed is due to cash reserve issues, McAdam said. In the J.D. Power survey, fewer Americans reported they had funds to cover six months of expenses and fewer said they had money stashed away for longer-term needs.
The share of bank customers with more than $10,000 in deposit balances at their main bank declined to 28% in March from 44% a year ago, while the percentage with less than $1,000 jumped to 30% from 17% year over year, according to J.D. Power’s findings.
“The savings cushion they had during Covid is long gone,” McAdam said, echoing the Evercore chart, which showed aggregate savings dropping from a high of $2.3 trillion in the third quarter of 2021 to $1.2 trillion now.
Additionally, more Americans told J.D. Power they could not always pay their bills on time and fewer said they had an excellent credit score. That dovetails with recent data showing that consumers are piling on credit card debt — which hit an all-time high in the fourth quarter of last year — as well as missing payments more often.
The J.D. Power survey did find some bright spots. While only 35% of folks felt financially healthy in March, that’s up from 29% who felt that way in November 2022.
“The low point in the last two years,” McAdam said.
Even the decline in deposits of $10,000 or more has a silver lining, according to McAdam. While Americans are spending down that cushion, they are also moving their money around more to capture better yields on deposit accounts. (The survey, which was conducted before the banking crisis unfolded, doesn’t take into account the $120 billion in deposits that left small and mid-sized banks during the turmoil.)
Still, there’s a ways to go to get back to the nearly 50% of people who felt financially healthy three years ago right as the pandemic began. But some of the pieces are in place. Jobs remain abundant and inflation is going the right way.
“Inflation seems to no longer be accelerating," McAdam said, "so that should help that number move up."
Janna is the personal finance editor for Yahoo Finance. Follow her on Twitter @JannaHerron.
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