Inflation is affecting finances and making Americans more stressed

MINNEAPOLIS – Dec. 14, 2023  – More Americans plan to put an emphasis on their finances in the new year as inflation and rising interest rates affect their long-term financial outlook, according to the 2023 New Year’s Resolutions Study from Allianz Life.

With ongoing economic stressors, Americans feel like they need to make positive changes for their financial wellbeing. Nearly half of all Americans (48%) say they are likely to make and keep a resolution to manage their money better or save more in the coming year. This is up from 43% in 2022 and 33% in 2021.

Millennials are the most likely to say they are likely to make and keep a resolution to manage money better or save more in the coming year. While 59% of millennials say they are likely to make and keep that resolution, just 39% of Gen X and 30% of boomers said the same.

“Many people often know that their long-term financial strategy needs to improve but need help to take action,” says Kelly LaVigne, vice president of consumer insights, Allianz Life. “The first steps often include creating a written financial strategy that can serve as a guide to achieve goals like retirement and mitigate risks to those milestones. The guidance of a financial professional can be crucial for Americans to take positive steps for their financial future.”

Increasing savings and paying down debt are the main ways Americans want to better their finances. Americans overall say they could improve their finances in 2024 by building up an emergency fund (17%), paying down credit cards (16%) and increase retirement savings (17%). For millennials, the top response was make a budget (20%) and for Gen X, it was pay down credit cards (24%).

With the added stress, many Americans say that they established some good financial habits over the course of the last year. The most common include reduced spending (36%), explored options to make additional income (23%), and increased meal planning to reduce eating out expenses (22%).

Still, many Americans recognize that they have poor money habits. Americans say their worst financial habits in the last year are not setting themselves up for long-term financial success. The most common habits are spending too much money on things they don’t need (26%), saving some but not as much as they should (26%), and not saving any money (24%).

Increasing financial stress

In general, more Americans say they are more stressed at the end of 2023 than they were last year. In 2023, 40% say they are more stressed. That’s up from 34% in 2022. Gen X is the most likely to say they are more stressed (46%), compared to 39% of millennials and 33% of boomers. The top financial stressors compared to last year include costs of day-to-day expenses (61%), income or retirement income too low (44%), and too much debt (34%).

One of the ongoing stressors to finances is the rising cost of living and inflation. The rising cost of living is affecting how Americans feel about their income, making big purchases and retirement.

• 29% say their pay increased from a raise or changing jobs in the last year. And, of those who received a pay increase in 2023, 73% say that even after that increase, their pay still isn’t keeping up with inflation.
• 23% say they put off making a big purchase like a house or car due to rising interest rates. Millennials were most likely to put off a purchase (33%), compared to Gen Xers (19%) and boomers (18%).
• 69% say they are concerned that the rising cost of living will affect their ability to save as much for retirement as they should.

“For long-term financial stability, Americans need to have a plan to mitigate the effects of rising cost of living,” LaVigne says. “While inflation has slowed from recent highs, inflation isn’t going away. You need to protect yourself from inflation risk long-term.”

More Americans retiring

More Americans plan to retire in the coming year. More than one in five Americans who are currently employed (22%) say they are likely to retire in 2024. This is up from 17% in 2022. For boomers who are currently working, 31% say they are likely to retire in 2024, up from 25% in 2022.

For a strong retirement, Americans need to include strategies to mitigate risk to their retirement. Americans say that the top actions they could take to reduce risk to their retirement include downsizing their current spending (34%), putting money in a financial product that would protect retirement savings from market drops (23%), and developing a plan to address the rising cost of living in retirement (21%).

Student loan repayment affecting long-term finances

Student debt is affecting many people’s long-term financial outlook and likely contributing to stress in the new year. Some Americans (9%) say they restarted paying federal student loans in 2023 since the pandemic pause ended. About one in five millennials (19%) say they restarted paying federal student loans. This restart will affect these borrowers financial situation moving forward into 2024.

• 82% say having to restart paying student loans will make it hard to make ends meet
• 66% say they have had or will have to reduce retirement contributions in order to restart student loan payments

*Allianz Life conducted the 2023 New Year’s Resolutions Study online in November 2023 with a nationally representative sample of 1,005 Respondents age 18+.