Financial Awareness

Americans Need Personalized Advice On Inflation & Recession Fears

Just 18 percent of Americans’ wages outpaced inflation in the past year

A new MDRT study examines the impacts of inflation and what spending cuts Americans would – or wouldn’t – be willing to make in a recession.

PARK RIDGE, Ill. (October 27, 2022) — A year of skyrocketing inflation and growing recession fears have taken their toll on American consumers, reinforcing a need for personalized financial advice rather than supposedly universal rules on household spending.

A new MDRT study finds only 26% of Americans say their personal financial situation has improved in the past year, and 76% are worried about a recession occurring in the year ahead. As consumers brace for a possible downturn, financial advisors must provide realistic, actionable advice specific to each client’s financial objectives, abilities and limitations.

Key Findings:

  • 38% of Americans say they could not cut back on caffeinated or energy drinks in a recession.
  • Just 18% of Americans say they received a raise that made up for inflation in the past year.
  • 16% of Americans with dependents at home say they left the workforce because childcare costs were too high.

Inflation Eats Away at Real Incomes

Though wage growth accelerated in the years leading up to the COVID‐19 pandemic, real incomes fell for most Americans in the past year. Only 18% of Americans say they have received a raise that made up for inflation in the past year, with men (23%) significantly more likely to report a raise in real terms than women (15%). Another 29% of Americans say they received a raise that did not make up for inflation, and a 38% plurality say their wages have not changed in the past year. Seven percent of Americans say the past year saw their wages decrease.

When asked to name their top three increased expenses for essential goods, 78% of Americans chose groceries, 70% chose gas prices and 39% pointed to their electric bills. Certain other expenses fell harder on different demographic groups: 27% of Generation Z and 22% of millennials identified rising housing costs, while 17% of Americans with at‐home dependents identified childcare.

Under this increased financial stress, only 38% of Americans say they have at least six months of income in easily accessible savings, with strong differences between racial communities. Forty‐two percent of white Americans say they have at least six months of savings, compared with 35% of Asian Americans, 26% of Hispanic Americans and just 16% of Black Americans.

“The possibility of recession has clearly come home for most Americans, and consumers are looking for ways to staunch the bleeding” said MDRT First Vice President Greg Gagne, ChFC. “Building a sufficient emergency fund is a critical first step toward long‐term financial security, and financial advisors will have to get creative to help their clients reach this first benchmark.”

Childcare Costs Shrinking the Workforce

Rising childcare costs have garnered increased attention from economists, financial advisors and politicians in recent years. With the trend showing no signs of letting up, 16% of Americans with at‐home dependents say they have left the workforce because childcare was too expensive. Slightly more women (18%) than men (13%) say they have left the workforce for this reason.

Building a sufficient emergency fund is a critical first step toward long‐term financial security, and financial advisors will have to get creative to help their clients reach this first benchmark...

Another 10% of Americans with at‐home dependents say they would consider leaving the workforce, and another 8% say their partner would, if childcare costs continued to rise. These figures indicate that childcare costs are having a substantial impact on the size of the American workforce, as these figures do not include parents who left the workforce for other reasons, like cultural beliefs or disability.

Cut the Coffee? Not So Fast

Many personal finance experts tend to make broad recommendations on how to cut spending for households under financial stress, like skipping morning coffee. The MDRT survey results, however, reveal many Americans who either reject such recommendations, or say they are not applicable to their individual situation, underscoring the need for financial advisors to avoid such “universal” guidance.

A full 38% of Americans say they cannot cut spending on caffeinated or energy drinks in a recession, and another 8% say they already don’t purchase any. Baby boomers are the most resistant, with 43% saying they cannot cut back, compared with 38% of Generation X, 29% of millennials and 27% of Generation Z.

Twenty percent of Americans say they cannot cut back on hobby‐related spending, like exercise, video games or recreational classes. Younger Americans are more resistant here, with 25% of Generation Z and millennials saying they cannot cut back, compared with 18% of baby boomers and 16% of Generation X.

“In an era where social obligations and interactions often require spending money, financial advisors should not be surprised when their clients say they cannot reduce some kinds of ‘non‐essential’ spending,” says MDRT Immediate Past President Randy Scritchfield, CFP, LUTCF. “Rather than attempting a one‐size‐fits‐all solution, advisors must meet clients where they are and find the best fit for their holistic well‐being.”

With financial anxieties at heightened levels, financial advisors must prepare to once more guide their clients through an economic storm. By properly personalizing their recommendations to each client situation, advisors can better help all their clients stay on track to meet long‐term financial goals.

 

 

 

Survey Methodology
This online survey was fielded by G&S Business Communications on behalf of MDRT on August 31, 2022, with a representative U.S. sample of 1,326 adults, ages 18+, including 644 who reported having children or adult dependents in their households. The sample was balanced for age and gender using the Census Bureau’s American Community Survey to reflect the demographic composition of the United States.
About MDRT
Million Dollar Round Table (MDRT), The Premier Association of Financial Professionals®, is a global, independent association of the world’s leading life insurance and financial services professionals from more than 500 companies in 70 nations and territories. MDRT members demonstrate exceptional professional knowledge, strict ethical conduct and outstanding client service. MDRT membership is recognized internationally as the standard of excellence in the life insurance and financial services business. For more information, please visit mdrt.org and follow them on Twitter @MDRtweet.