The majority of Americans in Q4 2022 reported their incomes were essentially flat; 51% of respondents indicated no change. Nearly equal proportions of respondents indicated an increase (24%) compared to a decrease (25%). Despite a majority (52%) of Americans having an optimistic outlook regarding household finances in the next year, even more (54%) reported their incomes were not keeping up with inflation. In fact, as incomes remained static in Q4, rising inflation could mean more than half of Americans are experiencing a ‘personal recession.’ Consequently, two distinct patterns of future spending behavior appeared in Q4: optimists who were better positioned financially and those most concerned about inflation who were not keeping pace.
Optimistic Americans plan more spending
Americans most optimistic about their household finances in the next year will behave very differently than those who reported being pessimistic. During Q4, 38% of optimists reported household finances better than planned vs. 5% of pessimists. Inflation appeared to be the culprit as 41% of optimists said their household incomes were keeping up with inflation compared to just 5% of pessimists. While consumers in general reported cutting spending, fewer optimists said they cut discretionary spending like dining out, travel and entertainment during the past few months than pessimists (51% vs. 75% respectively). In addition, more optimists planned on increasing spending in the next three months compared to pessimists: discretionary spending 20% vs. 7%; large purchases 19% vs. 8%; and retirement funding/investing 24% vs. 5%.
Younger consumers tended to be more financially optimistic in Q4. Among generations, 64% of Millennials, 61% of Gen Z, 48% of Gen X, and 43% of Baby Boomers reported being optimistic about their household finances in the next year. Optimism was heavily weighted toward the highest income band; 55% of those having a reported income of at least $100,000 annually said they’re optimistic, the highest among any income level.
Those concerned with inflation experienced a ‘personal recession’
Eighty-three percent of Americans who reported inflation in their top three financial concerns were struggling more — as 49% indicated their household finances were worse than planned compared to 33% of all others. These consumers were more likely experiencing a ‘personal recession’ given 59% of them reported their incomes were not keeping up with inflation compared to just 32% for all others. They were also less optimistic about their future finances; 49% optimistic vs. 70% of all others.
Consequently, those most concerned about inflation were more likely to cut spending and less likely to seek new financing in the future. Nearly three-quarters (71%) of those who reported inflation in their top three financial concerns planned to cut spending to prepare for a possible recession compared to 55% of all others. The biggest areas of reduced planned spending for inflation concerned were discretionary spending
(58% vs. 42% for all others) and retail (46% vs. 31% for all others). Furthermore, 23% of those who reported inflation in their top three financial concerns said they’re going to apply for new or refinance existing credit in the next year compared to 37% of all others.
Inflation concerned consumers were more likely to be older; 86% of Gen X and 87% of Baby Boomers cited inflation in their top three household financial concerns compared to 77% of Gen Z and 78% of Millennials. As far as income, 85% of those who reported middle incomes ($50,000 to $99,999) said inflation was in their top three household financial concerns, the highest among income levels. Among credit scores, those with the best reported scores (781–850) had the highest inflation concern at 86%.