A majority of Americans say inflation is pushing them off track financially, redirecting their attention to short-term goals like increasing their income and making it almost impossible to save for retirement or a child’s college education, a Thrivent survey found.
The Consumer Financial Outlook Survey, the outcome of a partnership between Minneapolis-based financial services company Thrivent and Washington, D.C.-based data company Morning Consult, revealed that 59% of Americans feel like they’re living paycheck to paycheck, and 78% said they wished they had more breathing room in their finances, primarily because of the pressure inflation is putting on their wallets.
“When people see the cost of groceries at the store and gas at the pump, they can see the impact of inflation. Those are areas where people know what things used to cost, and so they feel the effect of inflation very directly,” said Nick Cecere, senior vice president and chief distribution officer at Thrivent.
What’s worrying, Cecere said, is that 76% of survey respondents said they’re being pushed off track financially by inflation to the point where 60% said it’s getting in the way of saving. Only 28% said they were saving enough right now.
And consumers’ response to the current economic environment may end up inflicting long-term damage on their financial security as they forego future goals in order to make the present easier. For example, the survey found more people are trying to increase their income (36%), sock away some emergency savings (31%), and pay off loans/debt (23%) and credit cards (22%) than are sticking to plans for retirement savings (20%), investing (13%), creating a financial strategy (8%) and earmarking funds for a child’s education (6%).
“A lot of folks are paying off loans because it’s important to get rid of that,” Cecere said. “But this is a great time for clients to get into that intentional planning that they may have procrastinated on. They need to look at how they’re spending their money. In many cases, they’ll wake up five years from and realize they don’t have money to send their child to school.”
Of course, knowing where the money is going—budgeting—is one of those key pillars to good financial planning that almost every client would agree makes a ton of sense, but very few are able to do. Living within one’s means, automating savings and having a goals-based strategy are three other areas rife with disconnect, the survey found:
- 85% of those surveyed said living within their means is very or somewhat effective, but only 68% do it.
- 82% said actively following a household budget is very or somewhat effective, but only 53% do it.
- 77% said automating savings is very or somewhat effective, but only 41% do it.
- 76% said establishing a financial strategy to address short and long-term goals is very or somewhat effective, but only 43% do it.
“Part of that chasm between knowing it’s the right thing to do and doing it is a confidence issue. It’s a challenging financial environment out there, and what we try to help clients address is what they can control,” Cecere said. “We’re saying to our clients, you can’t control the markets, but you can control to some degree what you spend and save.”
In some ways, he said, that chasm isn’t all the client’s fault—the last 10 years of low or zero interest rates created a habit of floating some expenses with debt and credit cards, but interest rates change a lot faster than human behavior.
“It’s often a behavioral issues more than an actual money issue, and if an advisor fails them in that respect, they don’t have a chance. Once they get off track, it’s a lot harder to get back on,” Cecere said. “That’s why this profession is such a benefit to the public. We’re helping people succeed financially, just like a physician will help them succeed medically.”