Americans are financially stressed out.
Despite decades-low unemployment levels, adults across the country report feeling unnerved about their finances. The culprit? Inflation.
Inflation is the rise in prices of, well, everything. A low amount of inflation is actually considered good for consumers. It’s often seen as a marker of economic growth and job opportunities. But, too much of anything, especially in a short time, can be bad.
When prices skyrocketed last year, the annual inflation rate climbed to a mountainous 9.1% in June 2022 before moderating down to 4.9% now. This is still well above the Federal Reserve’s preferred level of 2%. Gas prices, for instance, are down $1.34 a gallon from this time last year, but are still $0.51 higher than two years ago.
Nearly half, 47%, of Americans say price increases have caused them to feel “very stressed” about their finances, according to our analysis of U.S. Census Bureau data.
“The impact of inflation continues, and Americans are reminded about elevated prices every time they fill up their gas tanks,” said Christian Mitchell, chief customer officer at Northwestern Mutual.
Not all folks bear the brunt of higher prices evenly. For instance:
- Residents of Mississippi report the highest levels of financial stress with 57% being “very stressed” by price increases. Nevada, Alabama and Oklahoma populations aren’t too far behind with 54% in each state reporting the same.
- Vermont, Minnesota and Wisconsin residents were the least likely to be “very stressed.”
- 53% of parents with kids in the home say inflation has been “very stressful,” compared to 42% of everyone else.
- Those with no high school diploma report the highest percentage of financial stress.
States with the most financial stress
Everyone is affected by price hikes, but some folks are heavily impacted.
Our team of analysts looked at the latest United States Census Bureau data to find the number of people in each state who said they were “very stressed”, “moderately stressed” and “not stressed” by inflation.
We found that people in the geographical southern U.S. experienced the most severe financial pressure.
Residents of the Magnolia State report the highest levels of strong financial stress with 57% being very stressed by price increases. Nevada, Alabama and Oklahoma populations aren’t too far behind with 54% in each state reporting the same.
Louisiana, Florida, Georgia, New Jersey, New Mexico and Texas round out the top ten states with the most residents who are feeling the strongest brunt of inflation.
Those in Vermont, Wisconsin and Minnesota experienced the least amount of debilitating effects.
Only about a third of Vermonters (35%) is very stressed from price increases, making it the lowest in the nation, in a good way. Wisconsin and Minnesota tie for second lowest with 37% of their residents feeling a strong pinch.
Cities with the most financial stress
Some city residents are having an easier time of it than others. For instance, folks who live in Seattle, Washington D.C, San Francisco and Boston are having an easier time of it than those who live in Miami, Houston, Detroit and Dallas.
This isn’t terribly surprising when you look at the numbers under the hood. Inflation rose by 9.0% over the past 12 months in the Miami metro area in April 2023, according to the Bureau of Labor Statistics, driven in large part by the rapid increase in housing prices. Meanwhile Boston-area prices were only up 3.8% over the same time period.
Data sourced from the U.S. Census Bureau.
Demographics with the most financial stress
Over half of millennials and Gen X are very stressed
The burn caused by price increases had a varying impact on different demographic groups. Aside from location, age, ethnicity and education also played a part in the severity of financial stress that individuals felt.
Most people aged between 25 and 54 felt very stressed by price increases (the largest group being 53% of those aged between 40 and 54). And well over half, 80%, of both age groups were either “very” or “moderately stressed.”
Data sourced from the U.S. Census Bureau.
More than 55% of Hispanics and Blacks reported being very stressed
We found that people who identify as Black or Hispanic were also very affected by rapidly rising prices.
Nearly three-fifths (59%) of Hispanic respondents were very stressed by price increases, while more than half of Black people (55%) felt the same way. Both findings are significantly higher than other ethnicities, with only 42% of white people and 40% of Asian people experiencing similar stress.
A study done in part with the Harvard T. H. Chan School of Public Health in 2022 (during peak inflation) reported that majorities of Latino and Black adults said they didn’t have enough savings to cover at least one month of their expenses and around a third had “serious problems affording food.”
Data sourced from the U.S. Census Bureau.
63% of Americans with no formal education greatly suffer from inflation
Those with no high school degree fared the worst of all demographic segments, with 63% being “very stressed.”
Research from the Federal Reserve Bank of San Francisco shows that the wage gap between those with degrees and those without has widened.
Data sourced from the U.S. Census Bureau.
Parents with kids at home are more stressed than people without
Finally, parents with children in the home are having a tougher time of it than everyone else. More than half of those with children in the household are feeling very stressed, which is 11 percentage points higher than those without kids under the roof.
How to deal with financial stress
Financial stress comes in many forms and fashions. Resolving it depends on the particular form that it’s taking in your life.
Reduce your credit card debt
Credit card debt is becoming a bigger force in people’s lives. For instance, credit card delinquency rates fell to 1.54% in the first part of 2021 from 2.69% prior to the pandemic, as the federal government doled out thousands in stimulus payments. Since then, though, the rates have increased to 2.43%. Americans will soon owe $1 trillion in credit card debt, compared to roughly $740 billion in March 2021.
This deluge of red ink has occurred just as credit card interest has skyrocketed. The average APR on credit cards with balances has jumped from 16.28% in 2020 to 20.92% now, making your debt that much more expensive.
Winding down your credit card debt can be key to reducing financial stress. But how to do it?
Pick a trick. There are any number of tips and tricks you can employ to reduce your IOUs. You can use the debt snowball method to attack the lowest credit card debt you have, and once vanquished, you can then go after the next biggest one. This gives you the good juju needed to work down your debt. Another option is to go after the card with the highest interest rate; this will help you minimize your interest payments. Whatever option you go with, stick with it and see it through to the end.
Consolidation. If juggling multiple credit card payments is proving too complex, consider consolidating your debt into one account. You can do this through a personal loan or a balance transfer credit card. Each product has its own advantages and tradeoffs, but both will allow you to deal with one account and one APR.
Professional help. If you feel as if your credit card debt is beyond your control, that your balances are too high and your credit score is too low, consider enlisting professional help. Working with a non-profit credit counseling agency to develop a debt management plan can help you slowly pay down your debt over time.
Increase your savings
As credit card debt has risen, savings have diminished.
The personal savings rate, which is the amount of savings compared to disposable personal income, sits at just 4.1% currently compared to 12.8% two years earlier. Increasing the cash in your savings account is surely difficult in an era of high inflation, it is not impossible.
Embrace higher yields. While borrowers are having a tough time with higher interest rates, savers are loving life. Yields on certificates of deposit (CDs), for instance, are much higher than they were just a year ago. You can even find decent yields on some checking accounts. What savings you do have will go farther if you put them to good use.
Make a budget. Few Americans do the hard work of actually putting pen to paper (or keyboard to screen) to understand how much they can afford to spend in a given month. By using this forward-looking, monthly budget calculator, you’ll be able to find places to cut back and better direct your precious resources.
Believe you can succeed. People who have the confidence that they are in control of their finances, regardless of the circumstances, tend to endure less stress and have better financial outcomes. This trait is valuable when confronting new financial obstacles as you age. Small wins, such as meeting a savings goal or paying off a debt, can help build yours.
Plan for the long-term
While inflation soared, debt rose and savings declined, your investments have also suffered. In 2022, stocks fell by 19%, while bonds dropped by 13%. That kind of destruction, especially in your 401(k), will cause anyone to feel stressed.
The key is to realize that short-term setbacks in your investments are part of life as a long-term saver. You just don’t want to compound those setbacks with unwise actions.
Keep steady. While stocks and bonds tanked last year, they’re both up this year. (Stocks have risen 11%, while bonds are up 2%.) In fact, stocks have never fallen over a 15-year time period. So try not to let the inevitable market ups-and-downs get you down.
Auto-save. In times of barren markets (or even luscious ones), you may be less likely to put your savings to work. That’s why it’s a good idea to automate your retirement savings, or all savings for that matter. You should also consider signing up for auto escalation if your plan offers it. (This is when your savings rate goes up by a set percentage at a set time each year.)
Half of every raise. The normal rule-of-thumb is to save 10%-to-15% of your pay, including any employer match, in your retirement fund. That’s a great option, especially if you keep your spending in check. Another option is to save half of every raise. For instance, if you start off making $50,000, and then in 5 years or so earn $80,000 after a new job or two, you’ll be saving $15,000. You’ll have a savings rate of almost 19% and you won’t have gotten used to spending your higher salary.
Methodology
USA Today Blueprint analyzed data from the United States Census Bureau Household Pulse Survey to determine the number of people in each state and city who reported feeling various levels of stress due to rising prices.
