A comprehensive survey conducted by the Federal Reserve has revealed that while most Americans say they are "doing at least OK financially," many are still grappling with the effects of persistent inflation, with parents bearing the brunt of the financial strain. The report, released on Tuesday, surveyed thousands of people about their household finances, including income, savings, and expenses, providing a snapshot of the current financial landscape in the United States.
According to the survey, conducted last fall, 72% of adults reported living comfortably or at least doing OK financially, a slight decline from 73% in 2022 and a more significant drop from 78% in 2021. The decrease in financial well-being is particularly pronounced among parents with children under 18, with only 64% saying they were doing at least OK, compared to 75% in 2021. This decline is largely attributed to the high costs of child care, which often amounts to at least half as much as housing expenses, with a median monthly cost of $800 or $1,100 for those using more than 20 hours a week.
The survey also found that while about a third of respondents reported an increase in their monthly income over the past year, a slightly higher percentage (38%) said their monthly expenses had grown. This disparity is primarily due to the impact of inflation, with two-thirds of Americans saying that rising prices have made their financial situation worse, including 19% who say they are much worse off. Surprisingly, about 1 in 3 people said inflation had little effect on their family finances.
Lower-income households reported more financial hardships, such as an inability to pay their bills every month or skipping meals or medical care. Nearly half (48%) of those polled said they had money left over after paying expenses, while 17% said they had unpaid bills in the previous month. When faced with an unexpected $400 expense, 63% of survey respondents said they could cover it with savings, unchanged from 2022 but down slightly from 2021. Alarmingly, about 1 in 8 people said they would be unable to handle such an expense by any means.
The report also highlighted the impact of double-digit price increases in home insurance over the past year. While the vast majority of homeowners have insurance, some of the most vulnerable people do not, including more than 20% of low-income families in the South.
Dr. Sung W. Sohn, professor of finance and economics at Loyola Marymount University's College of Business Administration, told The Post, "If you look at consumer confidence, it's been trending down significantly." He added that it was reasonable for parents with young children to feel negatively about the economy, as children have many needs and wants that may be difficult to fulfill in an inflationary environment.
The survey also found that rental costs proved to be particularly challenging for households, with nearly one in five (19%) saying they fell behind on rent at some point in 2023, up from 17% the previous year. The median monthly rent rose 10% to $1,100, significantly outpacing the consumer price index over the 12 months preceding the survey.
Investors are optimistic that the central bank will start cutting rates in September, but Fed Governor Christopher Waller cautioned that inflation needed to cool over the next three to five months before any rate cuts could be considered. "If the data were to continue softening throughout the next three to five months, you can even think about doing it at the end of this year," Waller told CNBC.
