Optimism about future household finances reached its highest point (57%) since Q4 2021 (65%). In fact, fewer Americans were pessimistic about future finances as well. Those who reported pessimism about their finances in the next 12 months fell slightly to 22% in Q2 2023. Despite household financial headwinds, Americans appeared to feel good about their prospects, driven principally by expectations for higher incomes in the coming year. More consumers (20%) reported their household incomes fell in the last three months, an increase of three percentage points from Q1 2023. Yet, 51% expected their incomes to rise in the next 12 months: This was highest among Millennials (68%) and Gen Z (66%) compared to Gen X (46%) and Baby Boomers (27%).
Inflation primary financial concern; driving reduced spending
Inflation was the number one financial concern for 43% of American consumers in Q2 and a top three concern for 79%. While there were no shortages of financial concern, inflation dominated other reported top concerns by a wide margin; recession came in at 15% and increased housing prices at 12% in Q2.
Concern about inflation resulted in significant differences in attitudes and behaviors impacting spending and finances. Of consumers who ranked inflation in their top three concerns, 41% reported household finances worse than expected compared to 25% of all others. Fewer (27%) agree their household finances are keeping up with inflation compared to 56% of all others, and just 48% believed their incomes would rise in the next 12 months compared to 61% overall. A third (34%) of inflation concerned Americans believed the US economy will enter a recession in the second half of 2023 compared to 25% of all others.
A higher percentage of Baby Boomers and Gen X said inflation is one of their top three financial concerns compared to other generations. Among those who said inflation is a top three concern, 30% were Baby Boomers and 30% Gen X. In comparison, 26% were Millennials and 14% Gen Z. Over two-thirds (67%) of the inflation concerned were planning to reduce spending to prepare for a recession compared to just 46% of all others. They were also less likely to seek new credit; only 28% of inflation concerned planned to seek new or refinance existing credit in the next 12 months compared to 41% of all others.
Financial realities impacting bill and loan payments
More than a third (38%) of consumers reported finances worse than planned at this point in the year, an increase of four percentage points over the previous quarter. As some consumers struggled, they indicated they’ll adjust their debt management. In fact, 31% stated they expect to be unable to pay a current bill or loan in full, a four-percentage point increase from the previous quarter. Of those who said they’ll be unable to pay fully, 41% reported they plan to pay a partial amount.