Are You Better Off Than You Were a Year Ago?

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A new report from the Federal Reserve examines how Americans view their overall financial health — essentially probing whether or not they are financially better off than they were a year ago.

The Fed’s Economic Well-Being of U.S. Households survey for 2023 found that slightly fewer Americans were better off in 2023 compared to 2022. It also revealed some key differences in financial well-being related to demographic groups and some of the major challenges.

Younger adults struggling more than older adults

Overall, the 2023 report revealed that 72% of adults were doing pretty well financially. Specifically, 39% said they were “doing okay” while 33% were “living comfortably.” About 19% said they were “just getting by” while 9% said they were “finding it difficult to get by.”

The 72% of adults who were doing at least okay was down slightly from 73% in 2022 and 6 percentage points lower than 2021, when 78% said they were at least doing okay.

However, there were some stark differences based on demographics. For example, the percentage of those doing well among 18- to 29-year-olds was 3 percentage points lower at 66%, while the number was 4 points lower for those aged 30 to 44, at 66%.

On the flip side, the numbers for older Americans were up, as 72% of 45- to 59-year-olds and 82% of those over age 60 said they were doing okay, up 1 percentage point in both cases.

Additionally, only 60% of lower- and moderate-income Americans were doing well, down 2 points from 2022, while 77% of middle- or upper-income adults were doing okay — the same as 2022.

There were also differences among racial and ethnic groups. The only group to see higher numbers in 2023 was black adults, with 68% saying they were doing well compared to 64% the previous year. The percentages for Asians (84% to 82%), white adults (77% to 76%) and Hispanics (64% to 61%) fell year over year.

Biggest financial challenges

In terms of financial challenges, 35% of Americans ranked inflation as their biggest, up from 33% in 2022, followed by basic living expenses at 21%, which was down from 22% the previous year. The third-biggest challenge was housing at 12%, up from 10% the previous year.

Further, some 65% said that changes in prices compared with the prior year had made their financial situation worse, with 19% saying it made their financial situation much worse.

Regarding financial resiliency, 63% said they could cover a $400 emergency expense completely with cash, which was the same as 2022. Of the 37% that could not, 16% said they would put it on a credit card, 10% said they would borrow from a friend, and 13% said they would not pay for the expense right now.

The study also looked at the growing financial burden of rent. Overall, the median monthly rent jumped 10% in 2023 to $1,100. Further, 19% of renters reported being behind on their rent at some point in the past year, which is 2 percentage points more than in 2022.

Childcare proved to be another major expense, as the the median cost for childcare was $800 per family per month and $1,100 for those who paid for 20 or more hours of childcare each week. For perspective on how big of a chunk out of the budget childcare is, the typical family spent about 50% to 70% as much per month on childcare costs as they did on their housing or rent payment.

Retirement savings on or off track?

The report also revealed that more Americans believed they were on track to meet their retirement savings goals in 2023 compared to 2022. Specifically, 34% of non-retirees thought their retirement savings plan was on track, up from 31% in 2022.

However, this is still lower than the 40% reading in 2021. It also reveals that some 66% feel they are not on track, so there remains a lot of work to do there.

Additionally, 80% of current retirees said they were doing at least okay financially, which is a higher percentage than adults overall. Further, 45% of adults said they were mostly or very comfortable choosing and managing their investments, while 55% of adults said they were either not comfortable or only slightly comfortable.

In terms of how Americans are investing for retirement, 61% have a 401(k) or IRA, while 21% have a pension. In addition, 54% have a savings or money market account, while 31% have a portfolio of stocks, bonds, mutual funds, or exchange-traded funds (ETFs) outside of their 401(k) or pension.

Additionally, 23% had cash in a life insurance policy. Finally, about 10% of non-retired adults borrowed from their retirement accounts last year.

The report data comes from the Fed’s Survey of Household Economics and Decision Making (SHED), which was conducted from Oct. 20 through Nov. 5, 2023. It included responses from about 11,400 participants.