Financial stressors plague Americans

Financial stressors plague Americans

Nearly one-third of U.S. residents worry about money on a daily basis.

July 27, 2016

Tossing and turning at night can be attributed to a myriad of issues, ranging from a late night java jolt to too-hot summer temperatures.

But frequently, according to a variety of surveys, slumbers for the American consumer are disrupted by unpleasant money matters.

Reasons for financial stress are many: Job loss, unexpected medical expenses, and wage stagnation, for instance. Another challenge nurturing anxiety might be problems with financial capability, according to a FINRA study, Financial Capability in the United States 2016

“Financial capability is a multidimensional concept that encompasses a combination of knowledge, resources, access and habits,” the report notes. 

Four important components comprise financial capability:

1. Making ends meet;

2. Advance planning;

3. Management of financial products; and

4. Financial know-how and decision making. 

Within these concepts other variables are important, such as:

  • Spending versus saving;
  • Sources of income;
  • Budgeting;
  • Risk tolerance; and
  • Self-perceptions of abilities and fiscal behaviors.

This week, discover sources of financial anxiety, consumer capabilities, and potential starting points and solutions to help your members get a good night’s sleep.

‘Reality is the leading cause of stress among those in touch with it.’—Jane Wagner (and Lily Tomlin)

First, let’s “get real” about the things consumers worry about regarding finances.

Financial Stress is Increasing for American Workers,” observes Financial stress escalates as confidence dips for workers, according to the Bank of America Merrill Lynch Workplace Benefits Report. 

Eighty-three percent of employees indicate financial benefits obtained on the job are “critical to their financial security.”

Seventy-five percent say they don’t have a sense of security, while “60% are somewhat or very stressed about their financial future,” an increase from 50% who expressed that concern in 2013.

Also, consumers are “out of control when it comes to finances,” as merely 24% of millennials, 18% of Generation X, and 22% of boomers say “I am in complete control of my financial situation.”

Reasons for insecurity include rising health care expenses that leave fewer dollars for retirement funds and create unmanageable debt loads. In 2013, 76% said a three-month job departure “would be difficult or be an actual crisis;” this statistic is now up to 80%.

“The United States is a nation of the financially anxious,” notes Northwestern Mutual’s Planning and Progress Study 2016. Eighty-five percent of survey participants report feeling anxious, and 36% noted this stress level has increased in the prior three years. Fourteen percent noted a decline in financial anxiety.

Twenty-eight percent worry about money on a daily basis.

Ramifications of financial stress are dire:

  • 67% note a negative influence on health;
  • 70% say stress dampens happiness;
  • 51% find it burdensome in their social life, and
  • 70% find it influential on mood.

“Interestingly, what seems to keep people up at night more than anything else is the unexpected,” the report says. The top two sources of anxiety are unplanned financial emergencies (38%) and medical costs due to illness (34%).

Job loss fears were problematic for 17%; retirement savings shortfalls bothered 29%; covering housing bills was an issue for 25%; card debt hampered 25%; and student loan indebtedness plagued 13% of respondents.

Eight percent said financial certainty would positively impact their health and 84% would find it a good influence on their happiness.

Another perspective on the source of financial anxiety is unearthed at Financial Finesse in their Financial Stress Research report.

Sources of top anxiety include shortages in retirement savings (58%), lack of emergency funds (51%), living a lifestyle they cannot financially support (34%) and significant debt (33%).

On average, households with debt have an average balance of $15,762 on credit cards and $48,172 in student loans.

“Poor money management habits lead to high financial stress,” the report notes. 

Of those reporting “overwhelming financial stress,” 6% have an emergency fund, 44% pay their bills monthly, and one-third have had to make a hardship withdrawal from retirement funds.

“The biggest thing employees can do…is to reduce expenses and/or increase income, pay off debts, build an emergency fund, and develop positive financial habits and behaviors,” says Financial Finesse.

‘Why stress tomorrow when you can stress today?’ –Douglas Wilson, theologian

Let’s consider special challenges in retirement planning, since it is one source of great anxiety for consumers.

Americans Are Optimistic About Living Longer, But Not About Their Savings,” says TheStreet.  Longer expected lifespan is creating “more and more concern for younger generations.”

Life expectancy is up 30 years over the past century and 70% of consumers feel inadequately prepared to fund the additional time. 

This is of greatest concern to Gen X, as 79% feel ill-prepared for a long life; 74% of millennials concur.

“Most people do not have enough saved, period,” notes Kevin Gallegos, vice president for FreedomFinancial Network. “They don’t have enough in just an emergency fund, let alone in retirement funds.”

Also, “Women, Minorities and Millennials Face Own Retirement Savings Challenges,” according to 

For women, compensation isn’t on par with their male counterparts. Median wages equal about 81% of those of men. Further, 27% of women are employed part-time to care for family, and “their opportunities for earning and advancement are limited.”

Minorities have lesser odds of participating in retirement plans. Twenty-six percent of Hispanic families, 41% of black families, 58% of Asian families, and 65% of white families have retirement plan savings.

Moreover, of minority families with such accounts, “75% have less than $10,000 and the median balance for retirement account assets is $30,000 for near retirees,” says the article.

Further, “Saving Early No Longer Enough for Retirement Success,” says ThinkAdvisor. An HSBC survey shows preretirees must save an extra seven years compared with those already retired. 

Younger workers have started saving on average at age 29, and today’s retirees started at age 31. Plus, today’s workers intend to remain on the job for an additional five years.

Another problem is that current workers don’t anticipate they will be debt-free upon retirement. And, half of those now age 70 and over borrow money.

Part of the issue may be that “Retirement Involves Supporting More Than Just Yourself” as 64% of those 70 and over financially support others. Millennials are moving back home, and some provide parental support also. 

‘When stress sets in, and pressure, I focus.’—David Hallberg, American ballet dancer

The good news is people can take steps to alleviate anxiety. 

Financial Finesse suggests consumers take the CALM approach, in which they Create a plan, Automate bill pay and saving, Lower expenditures, and Make progress.

And, The Motley Fool suggests three ways to cure anxiety: Grow emergency funds, make good investments, and regularly review finances.

Many variables contribute to financial security, and research shows some demographics are more vulnerable than others. A variety of efforts are required to help calm consumer fears.

Says FINRA, “Addressing the inequalities in financial capability requires a combination of far-sighted public policies and well-designed financial programs. Both… are needed to broaden access to financial products, protect consumers from predatory practices, and foster greater participation in healthy, life-long financial practices.”

LORA BRAY is an information research analyst for CUNA’s economics and statistics department . Follow her on Twitter via @Bray_Lora and visit the CUNA blog, The Research Roundup: Economic Perspectives.