Spending Outpaces Income in the US as Negative Financial Health Trends Emerge

The Financial Health Network, the US’ authority on financial health, with support from the Citi Foundation and Principal(R) Foundation, unveiled the Financial Health Pulse: 2022 US Trends Report. This fifth edition of the report finds financial health in America declined across many demographic and socioeconomic groups as spending outpaced income and savings accounts were depleted.

For the first time since its launch in 2018, the report recorded a drop in the number of people considered financially healthy, falling three percentage points from last year to 31 per cent in 2022. This change erased most financial health gains people experienced in 2020 and 2021, returning financial health in the US close to pre-pandemic levels. Nearly eight million people moved from financially healthy to coping, and two million more people are now financially vulnerable. Notably, there was a six percentage point drop in the number of people reporting they spend less than or equal to their income and a three percentage point drop in the number of individuals confident in meeting their long-term financial goals.

Key Findings Include:

• For the first time, the Pulse Trends Report recorded financial health declines across most income groups, with those making between $60,000 and $99,999 per year experiencing a seven percentage point decline, followed by a four percentage point decline for those making over $100,000.
• Both men (minus four percentage points) and women (minus three percentage points) experienced somewhat equal declines in financial health.
• Black individuals experienced a notable decline (minus six percentage points) in financial health, dropping to only 15 per cent considered financially healthy in 2022.
• A three percentage point decline in the number of people reporting enough emergency savings to cover at least three months of living expenses.

“The data shows that while the combined pinch of historic inflation and market fluctuations has contributed to a rare drop in financial health for higher income households, lower income earners experienced
employment-related improvements like wage increases or new jobs,” said Jennifer Tescher, president and CEO of Financial Health Network. “However, even with modest gains, lower-income households are in a precarious position due to systemic financial barriers and wealth disparities. It is critical that employers, financial institutions, and policymakers prioritise financial health and collaborate for better outcomes in these uncertain times, especially as economic conditions could trigger future financial health declines.”

FinHealth by demographics

While this edition of the Pulse Trends report found large declines in financial health by traditionally secure groups like middle- and higher-income earners, non-LGBTQIA+ and people without disabilities, large and well-defined financial health gaps by gender, race and orientation persist (see complete data table in report):

• Despite a large drop in financial health from last year, those making between $60,000 and $99,999 are still much more likely to be financially healthy (36 per cent) than those making less than $30,000 (10 per cent) or between $30,000 and $59,999 (23 per cent).
• Asian (44 per cent) and White (35 per cent) participants remain much more financially healthy than Black (15 per cent) or Latinx (23 per cent) individuals.
• Men (39 per cent) continue to experience higher levels of financial health than women (23 per cent).
• Non-LGBTQIA+ people (32 per cent) are financially healthier than LGBTQIA+ (23 per cent).
• People without disabilities (35 per cent) still have higher financial health levels than those with disabilities (20 per cent).

Inflation and labor market indicators

Changes in employment circumstances and perceptions about rising prices had significant implications for people’s financial lives. While people across all income levels reported being impacted by inflation, lower income earners reported the most stress caused by higher prices. Overall, high levels of stress about inflation were associated with a three-point drop in a person’s financial health score, with food, transportation and utilities reported to have at least a moderate impact on 30 per cent or more of people’s standard of living.

At the same time, there was an association between the tightening labour market and increases in the financial health score of lower-income workers, specifically individuals making less than $30,000 per year who:

• Received a raise increased raised their financial health score by 7.9 points
• Increased their hours worked experienced an increase of 8.4 points – Voluntarily switched jobs increased their score by 9.1 points

Comparably, the data showed no relationship between employment changes and changes in financial health scores for higher-income groups.

“The entire financial ecosystem has a role to play in improving Americans’ financial health,” said Jo Christine Miles, director, Principal Foundation and Principal Community Relations. “Government interventions are crucial for dampening economic blows, while products and services from financial service providers that are better designed to help consumers manage their day-to-day lives easily, securely, and affordably are crucial for building the resilience needed to ensure stability during economic volatility,”

The Pulse Trends report scores survey respondents against eight indicators of financial health — spending, bill payment, short-term and long-term savings, debt load, credit score, insurance coverage, and planning — to assess whether they are “Financially Healthy,” “Financially Coping,” or “Financially Vulnerable.” In 2020, the Financial Health Pulse began to also utilise transactional data to gain an even deeper understanding of individuals’ financial health. As of August 2022, 1080 individuals had linked at least one financial account, totaling 6,628 accounts across 2,787 institutions.