Financial well-being spirals downward as cost of living rises: Fed

Feeling worse off financially? You’re definitely not alone.

This week, the Federal Reserve released its “Economic Well-Being of U.S. Households in 2022” report, which takes an in-depth look at the financial pictures of American adults and households. Unsurprisingly, the report shows that inflation has caused some significant financial issues across the board, which is likely the primary reason that “self-reported financial well-being fell sharply and was among the lowest observed since 2016.”

The report itself is composed of data taken from an October 2022 survey of more than 11,000 U.S. adults, which help paint a picture of the overall financial health of American households. Given that we’ve experienced inflation levels that haven’t been seen in nearly half a century, and interest rates rising at an unprecedented rate, it’s not entirely surprising that the average American is feeling squeezed.

Here are a few of the key takeaways from the report:

• We’ve seen better days: 35% of adults said they were worse off financially than a year earlier, which is the highest share since the question was first asked in 2014.

• Raises aren’t cutting it: Income was up, but not as much as spending. Specifically, 40% of adults said their monthly spending went up compared to the prior year, while 33% said their income increased.

• Labor market bright spot: If you’re looking for a silver lining: Workers “continued to benefit from a strong labor market,” the report says, even though rising prices have had a negative effect on most households, dragging down overall financial well-being.

To sum it up: Spending was up, income was up, too (but not as much as spending), and overall, people are feeling worse than they were before. Again, this isn’t really news to anyone but could serve as validation to millions of people who may feel as though they’re fighting a singular battle against rising prices and a tightening economy.

Perhaps the most interesting aspect to the report is that we’re able to get a sense of just how powerful of a force rising prices have been by comparing them to a historically strong jobs market. The latest jobs report, released early this month, showed a net gain of 253,000 jobs in April, with the unemployment rate at 3.4%—near a 50-year low. Even with those sorts of numbers, though, Americans are feeling pessimistic. 

The good news? The rate of inflation has been slowing as the Fed has increased interest rates, and employment has, thus far, and outside of certain sectors, remained largely unaffected. That has hopes raised for a soft landing—though it’s still far from guaranteed.