As economy recovers, many are taking their lives off holdNew research from the American Institute of CPAs. Reprinted with permission. Visit here.
NEW YORK (May 15, 2018) – The recent recession caused Americans to face some hard economic realities. As the economy continues to recover, more Americans are taking their lives off hold as fewer are being forced to delay going to college, getting married or having kids because of financial concerns. A new survey found that the number of American adults that have postponed at least one important life decision in the last year for financial reasons has fallen to 35 percent. This is an improvement from the 51 percent in a similar 2015 survey when Americans were still recovering from the recession.
The percent of Americans putting off specific life events for financial reasons has been nearly cut in half for a few areas. For example, 6 percent put off marriage last year, a change from 12 percent in 2015. Additionally, only 7 percent put off having children, compared to 13 percent in 2015. This according to a recent telephone survey, conducted in April 2018 on behalf of the American Institute of CPAs (AICPA) by The Harris Poll.
Unstable economic times can often make getting married and starting a family difficult because of the potential financial commitment involved. With the average wedding in the US costing more than $30,000 and the estimated price to raise a child through age 17 eclipsing $230,000, it is clear that these big life steps come with a price tag.
- Only a third of Americans delayed a major life decision in the past year for financial reasons, a significant improvement from 2015
- The number of Americans putting off specific life decisions such as marriage, having children, buying a house and higher education is shrinking
- Bad financial habits are making a comeback as fewer people report making positive changes to their financial behavior
Costly Financial Lessons
“As the economy continues to pick up steam and we put the recession further in the rearview mirror, it is important to be cautious and not forget the difficult financial lessons we learned,” said Greg Anton, CPA, chairman of the AICPA’s National CPA Financial Literacy Commission. “When making a major life decision, don’t just focus on the immediate costs. Consider the long-term financial implications as well. Taking on too much credit card debt to buy things your savings can’t cover, or making big purchases when you aren’t financially stable are reckless moves in any economy.”
The percent of Americans delaying higher education due to financial concerns saw a big drop. Back in 2015, nearly a quarter of Americans (24 percent) reported delaying higher education. Now, only 13 percent are delaying, an 11 percent improvement. With overall college enrollments down and the average cost of college tuition continuing to creep up, these results suggest that Americans may be questioning the idea that going to college is the best financial decision for everyone. And with the average student graduating with $39,400 in loans, higher education has the potential to affect savings and other financial decisions well into early adulthood.
In a similar positive trend, fewer Americans say costs are preventing them from getting into the housing market. In 2018, only 14 percent delayed buying a home for financial reasons, compared to 22 percent in 2015. Also, less Americans are delaying getting a medical procedure (12 percent delayed in 2018, compared to 19 percent in 2015) and retiring (10 percent delayed in 2018, compared to 18 percent in 2015) for financial reasons.
Postponement became the norm
For those Americans who were forced to postpone life decisions, the top concern cited was a lack of savings (60 percent). This is consistent with the 60 percent who pointed to a lack of savings in 2015. In the most recent survey, the second highest factor was concerns about the U.S. economy which saw the largest change, shaving 12 percentage points from 50 percent in 2015 to 38 percent in 2018. Medical bills came in as the third highest cited factor and the only one to get worse (34 percent in 2018, compared to 29 percent in 2015).
With health spending projected to grow at an average rate of 5.5 percent per year, it is no surprise that medical bills are causing more Americans to postpone major life events. And there is a serious downside of those payments piling up – the financial burden from medical bills is the number one reason Americans file for bankruptcy.
Additional reasons Americans delayed life decisions this past year include difficulty paying non-mortgage monthly bills (29 percent), credit card debt (27 percent), a need to take care of elderly parents or other relatives (25 percent), concerns about losing their job (22 percent), and difficulty making mortgage payments (17 percent).
While it is good news that financial situations appear to be improving, Americans may be forgetting the lessons that they learned in the wake of the recession. Alarmingly, the percent of Americans to report making at least one positive change to their financial behavior since the recession has declined (68 percent in 2018, compared to 85 percent in 2015).
These specific changes include:
- Following a monthly budget (39 percent in 2018, compared to 58 percent in 2015)
- Starting or increasing their savings rate (36 percent in 2018, compared to 44 percent in 2015)
- Putting less money on credit cards (30 percent in 2018, compared to 50 percent in 2015)
- Starting or adding to an emergency fund (30 percent in 2018, compared to 35 percent in 2015)
- Starting or increasing contributing to retirement accounts (28 percent in 2018, compared to 32 percent in 2015)
Economic Ebb & Flow
“It is important to remember there is a natural ebb and flow to the economy that can have a significant negative impact on those who overextend their finances,” said Anton. “America is in the middle of a strong economic period, but not too long ago many were caught off-guard by the recession. With the economy stable for the time being, it is the perfect time to check in your financial plan to make sure that when you do come to the crossroads of a major life decision, you are not being held back by your bank account.”
There are many ways Americans can make sure financial worries don’t get in the way of their life goals. The AICPA’s National CPA Financial Literacy Commission recommends the following:
Navigate expenses with a long-term financial plan
Establishing and sticking to a realistic plan to achieve your long-term goals, like a home purchase and funding retirement, can help you avoid difficult decisions that may hurt your financial wellness.
Manage spending with a month-to-month budget
A current view of your income and how much of it is absorbed by obligations like rent and car payments can help you make better spending decisions. By knowing what you have available, you won’t find yourself having spent part of next year’s income for this year’s costs of living.
Use credit cards cautiously
The temptation to overspend may be strongest when you feel like you’re “riding high” and the media signals a growing economy — but keep in mind that the economy has ups and downs, and even the most promising careers can come with an unplanned employment gap. Unpaid balances that grow with high interest charges, along with an income interruption from an unexpected layoff, can be a “perfect storm” of financial distress. If you can’t pay off your balances with cash each month, you’ve gone too far.
Shore up resources
The economy is a roller coaster. Enjoy the time at the top, but make sure you’re buckled in for the drop. Take any extra income and use it to pad your emergency fund. If you’re in the type of work that would do layoffs during a downturn, start networking in your industry now so that if you do lose your job, you’ll have others who know you to help you find a new position.
Rebalance your investment portfolio
After the market gains of the last couple of years, it’s time to make sure that your investment portfolio (both inside and outside of retirement plans) still carries an appropriate risk profile and that the proportion of “safe” investments such as money market accounts is sufficient to carry you through an unexpected financial setback. This rebalancing is critical on a periodic basis, especially after a long run-up in the market.
The Harris Poll Methodology
The 2018 survey was conducted on behalf of AICPA by The Harris Poll by telephone within the United States between April 5 and 8, 2018, among 1,014 adults (510 men and 504 women aged 18 and over) including 414 interviews from the landline sample and 600 interviews from the cell phone sample. The 2015 study was conducted on behalf of AICPA by The Harris Poll by telephone within the United States between March 19 and 22, 2015, among 1,010 adults (506 men and 504 women aged 18 and over) including 510 interviews from the landline sample and 500 interviews from the cell phone sample. Results were weighted (using data from the Current Population Survey) where necessary to bring them into line with their actual proportions in the population.
About the American Institute of CPAs
The American Institute of CPAs (AICPA) is the world’s largest member association representing the CPA profession, with more than 418,000 members in 143 countries, and a history of serving the public interest since 1887. AICPA members represent many areas of practice, including business and industry, public practice, government, education and consulting. The AICPA sets ethical standards for its members and U.S. auditing standards for private companies, nonprofit organizations, federal, state and local governments. It develops and grades the Uniform CPA Examination, offers specialized credentials, builds the pipeline of future talent and drives professional competency development to advance the vitality, relevance and quality of the profession.
The AICPA maintains offices in New York, Washington, DC, Durham, NC, and Ewing, NJ.
About the Association of International Certified Professional Accountants
The Association of International Certified Professional Accountants (the Association) is the most influential body of professional accountants, combining the strengths of the American Institute of CPAs (AICPA) and The Chartered Institute of Management Accountants (CIMA) to power opportunity, trust and prosperity for people, businesses and economies worldwide. It represents 650,000 members and students in public and management accounting and advocates for the public interest and business sustainability on current and emerging issues. With broad reach, rigor and resources, the Association advances the reputation, employability and quality of CPAs, CGMAs and accounting and finance professionals globally.