With rising inflation and continued interest rate hikes, 76% of Americans rate the state of the US economy as “poor” or “fair,” according to a recent Nationwide Agency Forward poll. Prior to the Fed’s latest interest rate hike, 68% of consumers expected rates to rise in the coming months. And when they think about their personal finances, about 3 in 4 consumers (77%) are “moderately” or “very” concerned about inflation and the rising cost of living.
National President, P&C Personal Lines Beth Riczko met with me to discuss the results, what these economic pressures mean for consumers’ personal finances, and consumer habits with a possible recession on the horizon.
Gary Drenik: What is the position of consumers in the current economic environment?
Beth Riczko: Almost every day there is a new headline about the state of the economy and its impact on consumers, and Americans are understandably worried. Many consumers have a gloomy outlook on current economic conditions and are not confident in the signs of near-term relief.
According to a recent Prosper Insights & Analytics survey, in total, 32% of consumers feel confident, while 68% feel low to no confidence. Combine that with our national data which reveals that consumers expect interest rates to continue to rise as their personal finances and mental wellbeing hang in the balance. While more than half (53%) said their personal financial situation was ‘poor’ or ‘fair’, the remaining 51% say their mental health has been negatively affected due to worries about the current environment.
Drenik: What are they doing to prepare if we enter a recession as many are predicting?
Riczko: More Americans do not feel ready for a recession. That doesn’t mean they aren’t weighing their options to protect themselves. Data shows that consumers are changing their spending habits due to economic uncertainty. Our survey told us that in response to current economic conditions, more than a third of consumers (38%) dined out less often; 36% adjusted their budget; 33% reduced the distance traveled by car; and 32% started buying cheaper or different items than they usually would in the last 6 months to meet their financial needs. We also saw nearly one in four (23%) Gen Z consumers expect to work in another job, compared to just 14% of the general population.
Drenik: This could potentially be the first time Gen Z has experienced a recession as working adults manage their own finances. How might their concerns differ from those of other groups that weathered similar downturns like the Great Recession of 2008?
Riczko: Data shows that Gen Z consumers are more concerned about their personal finances than the general population. Nationally, 60% of Gen Zers rate their personal financial situation as “fair” or “poor” compared to 53% of the general population – with more than 4 in 10 (44%) saying their personal financial situation has deteriorated over the years. the last 6 months.
For those entering the workforce for the first time, preparing to pay off student loans, or securing affordable housing, this time of economic turmoil can be especially scary. According to a recent Prosper Insights & Analytics survey, Gen Z is 7% less likely to pay off debt in the next 3 months compared to other age groups. This is an alarming statistic given that student loan debt is at an all time high. National agency Forward research shows that 71% of Gen-Z agree that their personal financial situation has been negatively affected by inflation and the rising cost of living, compared to 66% of the general population.
Drenik: You mentioned that some consumers are considering taking another job to make ends meet. In addition to seeking more income, are there concerns about stability with their main employer?
Riczko: Employees are worried about the economic spiral and its impact on their jobs, mainly job loss or reduced pay or hours. Our survey shows that when thinking about the potential impact of a recession or economic downturn in the United States, 4 in 10 consumers (40%) fear losing their job, being laid off or suffering a reduction of salary. The national data also shows that they might not be wrong, as 21% of respondents say they have witnessed a slowdown in hiring and 33% of Gen Z have experienced a decrease in work hours. Along with the pause in hiring and reduced hours, 31% of Gen Zers say they’ve been asked to take on more responsibility without additional pay in the past 6 months.
Drenik: When considering cutting a household budget, where should consumers think twice about saving money?
Riczko: Consumers are already deciding to eat less at restaurants or to buy different foods at the grocery store. But one area to be careful of when downsizing is their insurance policies. Nationwide’s Agency Forward study found that almost half of consumers expect their insurance premiums to rise (48%), and that may be why more than half have already looked or will look ways to save on premiums for their existing policies (56%). Reducing coverage may seem like a short-term solution, but it could prove more costly in the long run. They may be underestimating the costs associated with problems that may arise in the future and whether they are prepared to incur additional costs if they reduce their insurance coverage.
Due to supply chain issues, rising costs and inflation, consumers are likely to spend significantly more on disaster damage. So while reducing coverage might seem like a reasonable idea in the short term, it might actually cost consumers more in the long run. For example, if you increase your deductible to reduce your insurance premium and suffer a claim, your payout will be higher. This is not the right time to take more risks. Consumers should discuss the options with their agent.
Drenik: Thank you, Beth, for sharing your thoughts on the economic challenges consumers are facing and the impact this is having on personal finances in general. It is interesting to understand how the different generations are impacted. We appreciate your time here today as you help us prepare for the economic downturn.
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