A significant proportion of the American population has depleted the surplus savings collected during the COVID-19 pandemic. According to JPMorgan, it is anticipated that in 2024, the majority of individuals will experience a decline in their financial well-being compared to the levels observed in 2019.
The Financial Crisis
Between 2021 and 2022, there was a notable decline in Americans’ financial well-being, marked by a 5-point drop in the percentage of adults who reported feeling “at least okay” financially, reaching 73 percent last year. This level in particular is one of the lowest recorded since 2016. A significant 54 percent of adults indicated that their budgets were substantially impacted by the rising prices in the U.S., with even higher proportions observed among Black adults, Hispanic adults, parents living with children under 18, and individuals with disabilities.
Furthermore, the proportion of adults who disclosed spending less than their income in the month preceding the survey fell below pre-COVID-19 pandemic levels. The report suggests that these declines in financial well-being metrics offer insights into how families were affected by broader economic conditions in 2022, including factors such as inflation and stock market fluctuations.
How Much Does the American Dream Cost?
Investopedia has conducted an analysis on the expenses associated with ten pivotal milestones that Americans aspire to achieve, revealing a cumulative cost of $3.4 million. This comprehensive assessment encompasses various aspects of the American Dream, including housing, childcare, and financing education, underscoring the financial challenges encountered by individuals across generations as they embark on family-building endeavors and plan for retirement.
The analysis from Investopedia highlights that escalating costs have rendered the conventional ‘American Dream’ unattainable for many. Notably, the average lifetime earnings for Americans, irrespective of educational attainment, amount to approximately $2.3 million, falling significantly short of the estimated cost of realizing the American Dream, which stands at over one million dollars more.
Breaking down the figures, the analysis indicates that raising two children to the age of 18 incurs costs of $576,896, based on 2015 USDA data adjusted for inflation to 2022. Additionally, purchasing a home averages $796,998, reflecting 2023 purchase rates, while health insurance costs amount to $934,752 over 39 years, based on annual costs derived from average family premium data by KFF.
Key lifetime milestones such as buying a car, funding one year of college tuition, owning a pet, or hosting a wedding collectively contribute to an additional expenditure of nearly half a million dollars, emphasizing the significant financial investment associated with pursuing the American Dream.
Rising Interest Rates
Certainly, not every family will choose to allocate resources to the expenses outlined in the analysis; however, it serves as a poignant reflection of the ongoing economic challenges experienced by Americans as the nation emerges from the pandemic. Despite a cooling inflation rate, a substantial portion of the population remains apprehensive about the current state of the economy, particularly in light of the impact felt from the Federal Reserve’s interest rate hikes over the past year.
The financial strain is particularly pronounced among millennials, who are grappling with high salary expectations to contend with the escalating costs of essential necessities. According to a survey conducted by financial services company Empower, in collaboration with The Harris Poll, millennials express the need for a substantial annual salary of $525,000 to achieve happiness. This figure, significantly higher than the $128,000 estimate from Gen Z, underscores the considerable pressure faced by millennial parents due to mounting consumer debt and the rising expenses associated with childcare. The survey sheds light on the evolving economic landscape and the financial considerations influencing individuals, especially those in the millennial demographic.
In a recent communication, Chase bank’s top stock strategist, Marko Kolanovic, highlighted that 80% of consumers, constituting nearly two-thirds of total consumption, have already depleted any savings they may have accumulated during lockdowns. Kolanovic expressed a concerning outlook, stating that it is likely that only the top 1% of consumers, based on income, will see an improvement in their financial position compared to pre-pandemic levels. This assessment is substantiated by emerging signs of credit card and auto loan delinquencies, as well as an uptick in Chapter 11 filings.
Projections indicate that by June 2024, every income group, except the top 1%, is expected to fall below their March 2020 levels of inflation-adjusted liquid assets, encompassing deposits and money market funds. JPMorgan previously reported that excess savings, which peaked in August 2021 at $2.1 trillion due to government stimulus checks, have dwindled significantly to below $148 billion as of October. The challenges faced by consumers include tighter credit conditions, rising interest rates, the conclusion of COVID-era stimulus and relief programs, diminishing excess savings, and liquidity constraints, according to JPMorgan strategists.
Bank of America, in a recent note, emphasized the particularly challenging circumstances for elder millennials, born in the 1980s, who hold substantial influence in the U.S. economy. Having navigated two recessions and lived through a pandemic during crucial working years, this group faces setbacks compared to younger millennials. Rising childcare costs and high debt loads compound their challenges, making it difficult for many in this demographic to own a house, save for retirement, and manage their finances comfortably within their means. The overall financial outlook appears pessimistic, with only the top 1% of income earners anticipated to experience an improvement in their financial status compared to the pre-pandemic period. Kolanovic flagged alarming indicators, including a surge in credit card and auto loan delinquencies, contributing to the concerns about the economic well-being of consumers.
JPMorgan strategists observed that consumers were contending with a myriad of challenges at the time. These difficulties encompassed tightening credit conditions, escalating interest rates, the gradual withdrawal of pandemic-related stimulus programs, the depletion of excess savings, and the sustained presence of above-average inflation. The convergence of these factors contributed to a complex and challenging economic landscape for individuals and households.
Exploring investments beyond the realm of conventional stocks, bonds and commodities, such as gold and silver, offers the potential for a diverse investment portfolio. Throughout history, precious metals have earned a reputation as a valuable hedge against inflation during challenging economic times, as they tend to maintain their value over the long term, even during economic fluctuations and on the brink of a recession.
Reach out to Reagan Gold Group today for a comprehensive discussion about your current investment portfolio and how to take ownership of your own wealth. Contact Reagan Gold Group today to gain a deeper understanding of how physical gold and silver can provide balance to your investment portfolio, well in advance of any severe economic downturns. Book a FREE consultation to get started. Your Wealth, Your Rules.
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