Are you better than a year ago?

A new report released by the Federal Reserve examines how Americans view their overall financial health. In other words, it’s essentially examining whether you’re better off financially than you were a year ago.

The Federal Reserve’s 2023 Survey of American Household Economic Well-Being found that slightly fewer Americans would be better off in 2023 than in 2022. We also uncovered some key differences in financial well-being and some key challenges associated with demographic groups.

Younger people have a harder time than older people

Overall, the 2023 report found that 72% of adults are doing fairly well financially. Specifically, 39% said they were ‘doing well’ and 33% said they were ‘living comfortably.’ About 19% responded, “I’m just getting along,” and 9% responded, “I’m just having a hard time getting along.”

72% of adults said they were doing at least well, down slightly from 73% in 2022 and six percentage points lower than in 2021, when 78% said they were doing at least well.

However, there were some notable differences based on demographics. For example, among those aged 18 to 29, the proportion living well was 3 percentage points lower at 66%, and among those aged 30 to 44, it was 4 points lower at 66%.

On the other hand, 72% of those aged 45 to 59 and 82% of those aged 60 and older responded that they were okay, increasing by 1 percentage point in both cases, increasing the figure for older Americans.

Additionally, only 60% of low- and middle-income Americans were doing well, down 2 points from 2022, compared with 77% of middle- or high-income adults. This is the same as in 2022.

There were also differences across racial and ethnic groups. The only group with higher numbers in 2023 were black adults, with 68% saying they were doing well compared to 64% the previous year. The proportion of Asian (84% to 82%), white adults (77% to 76%), and Hispanic (64% to 61%) adults decreased compared to the previous year.

biggest financial challenge

In terms of financial hardship, 35% of Americans cited inflation as the biggest factor, up from 33% in 2022, followed by basic living expenses at 21%, down from 22% the previous year. The third biggest challenge was the increase in housing share from 10% the previous year to 12%.

Additionally, about 65% said their financial situation had worsened due to price fluctuations compared to the previous year, and 19% said their financial situation had become significantly worse.

When it comes to financial resilience, 63% said they could cover an emergency expense of $400 entirely with cash, the same as in 2022. Of the 37% who did not, 16% said they would save with a credit card and 10% said they would save with cash. They borrowed money from a friend, and 13% said they would not pay for it right now.

The study also looked at the growing financial burden of rent. Overall, average monthly rent in 2023 rose 10% to $1,100. Additionally, 19% of renters reported being behind on rent at some point last year, two percentage points higher than in 2022.

The median cost of child care was $800 per month per family, or $1,100 for those paying for more than 20 hours per week. If we look at how much of the budget childcare costs account for, the average family spends about 50-70% on childcare costs per month compared to what they spend on housing or rent.

Is Retirement Savings Normal or Normal?

The report also found that more Americans believe they can achieve their retirement savings goals in 2023 compared to 2022. Notably, 34% of non-retired people thought their retirement savings plan was on track, up from 31% in 2022.

However, this is still lower compared to the 2021 figure of 40%. It also found that about 66% feel they are not on track, meaning there is still a lot of work to be done.

Additionally, 80% of current retirees say they are at least doing well financially, which is a higher percentage than all adults. Additionally, 45% of adults say they are mostly or very comfortable choosing and managing investments, while 55% of adults say they are either uncomfortable or only somewhat comfortable.

Looking at how Americans invest for retirement, 61% have a 401(k) or IRA and 21% have a pension. Additionally, 54% have a savings or money market account, and 31% have a portfolio of stocks, bonds, mutual funds, or exchange-traded funds (ETFs) in addition to a 401(k) or pension.

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

Data in the report comes from the Federal Reserve’s Survey of Household Economics and Decisions (SHED), conducted October 20 through November 5, 2023. It included responses from approximately 11,400 participants.