The lingering impact of the pandemic on financial security

A recent study published by Northwestern Mutual explores the attitudes and behaviors of American adults toward money, financial decisions, and broader issues affecting their long-term financial security.

Investors and savers today continue to grapple with the pandemic, inflation and economic uncertainty. As a result, many adults have adjusted in their financial lives by improving their financial habits, accommodating emergencies, and becoming more confident in themselves.

Findings from the Planning & Progress Study 2022 show that despite these improvements, financial discipline is not at last year’s level and personal savings are beginning to decline. More than 60% of respondents said the pandemic had greatly disrupted the way they manage their finances. Among them, 48% said they were able to adapt, while 13% said they did not.

More than 4 in 10 (43%) American adults said they made up for lost financial ground in the first year of the pandemic, compared to 30% who said they didn’t and 27% who said they didn’t. lost ground in 2020, according to the study. Of the 43% who have made up for lost ground, 10% said they have made up for everything and more, and they are now ahead of where they hoped to be financially. Some 12% said they had fully caught up and were on track financially, and 21% said they had made up some lost ground in 2020 but were not yet completely on the right track.

The study found that 60% of adults said they had been able to build their personal savings over the past two years, and 69% said they plan to maintain their new savings rate in the future. . Although more people are saving, year-over-year figures show that the overall amount saved has fallen by 15%. The average amount of personal savings in 2022 was $62,000, compared to $73,000 in 2021.

Most adults (73%) said they had adopted better financial habits as a result of the pandemic, and an equal number of people said they expected to maintain these good habits in the future, according to the study. That’s below the 95% who said the same in 2021.

The study lists the top five behaviors adopted: reducing cost of living/spending (35% in 2022 vs. 45% in 2021), paying down debt (22% vs. 34%), increasing investment (19% vs. 33%), increase the use of technology to manage finances (19% vs. 28%) and regularly review financial plans (17% vs. 29%).

The study found that people who work with a financial advisor and those who identify as disciplined financial planners not only report lower levels of financial anxiety in their lives, but also higher levels of happiness and better sleep.

Among respondents, 54% said they felt somewhat or very anxious about their finances. That number drops to 46% for people who work with a financial advisor and 47% for those who identify as disciplined planners, according to the study. Among Millennials and Gen Z, 66% said they felt somewhat or very anxious about their finances.

The study also revealed a strong generational difference in how people perceive the impact of their day-to-day financial decisions. A majority of the youngest group of American adults believe that small daily purchases will have an effect on their long-term financial security.

When asked if a small purchase like a daily cup of coffee would impact their long-term financial security, 44% of adults agreed, including 53% of Gen Z, 52% of Millennials , 46% of Gen X and 32% of baby boomers, according to the study.

More than 6 in 10 Americans (62%) said their financial planning needed improvement, but only 35% said they had sought help from a financial advisor, according to the study. Nearly a fifth (18%) of adults said they didn’t have a counselor before the pandemic, but have now started working with someone or plan to go before.

Three-quarters of Gen Z and Millennials said their financial planning needed improvement, the study found. They are most likely to say they did not work with an advisor before the pandemic, but have since started doing so or plan to do so.

The study also found differences in savings behavior between those working with an advisor and those going it alone, with 80% of those who got professional help saying they were able to build up their savings during the pandemic. Of those who did not receive assistance, 49% said they were able to save more.

Sarah J. Greer