Inflation remains a headwind for many consumers
Although the annual US inflation rate held steady at 3.7% in Aug. and Sept., down from its high of 9.1% in July 2022, nearly half (45%) said their household incomes hadn’t kept up with inflation, four percentage points higher than Q3 2023. In the last three months, 40% of consumers reported household finances were worse than planned, the highest this year.
Of the (79%) for whom inflation was a top three concern, 58% said they reduced discretionary spending in the past three months compared to 39% for those not concerned about inflation. They were also less likely to apply for new or refinance existing credit in the next year (29% for inflation concerned vs. 46% not concerned). Despite compound inflationary pressure, Americans remained optimistic about their financial futures: 56% expected improved household finances in the next 12 months with Millennials (71%) leading all generations.
Millennials powering the future
More than half (52%) of Millennials reported their finances were better than planned in Q4 2023, 21 percentage points higher than overall. Their financial situations were starkly better than other generations with 37% of Gen Z saying better than planned, 24% of Gen X and 15% of Baby Boomers. A much higher percentage (53%) of Millennials said their incomes kept up with inflation compared to other generations (44% of Gen Z; 26% of Gen X; and 21% of Baby Boomers).
The positive financial position for Millennials resulted in higher economic activity — leading all generations in current and future spending and savings. Over the past three months, Millennials reported saving more in an emergency fund (35%), paying down debt faster (29%) and increasing use of available credit (28%) in the past three months. They also planned to increase spending in the next three months, including in-store or online retail shopping (40%), retirement funding and investing (40%), discretionary spending (35%) and large purchases like appliances or cars (34%).
Federal student loan forbearance ending impacts monthly budgets
Nearly two-thirds (65%) of consumers who have a federal student loan that was previously in forbearance as part of the Department of Education’s COVID-19 relief program were surprised by the announcement repayment would resume in Oct. 2023. Despite that, most appeared prepared to cover increased monthly loan obligations but may sacrifice future financial goals to do so.
More than half (58%) planned to make all student loan monthly payments in full, and 30% planned to make a partial payment each month. Nearly half (45%) reported they have a monthly payment less than $400; 33% between $400 and $799; and 22% said $800 or more. To cover this additional monthly expense, 33% planned to reduce discretionary spending or use their savings; 28% said they’ll get a second job/do part-time or temporary work; 25% will use money from retirement savings; 21% will use credit card available limits; and 19% will borrow from family or friends, or delay a key milestone like marriage or home purchase.