Consumers feel 13% less confident about their financial outlook now than they did one year ago, according to the latest WalletHub Economic Index. This is the second largest year-over-year drop during the past 12 months.
“This last year, the market experienced inflation despite multiple rate hikes. However, people kept on spending, partially because of residuals from the COVID-19 pandemic stimuli and the low unemployment rate,” said Nada Nasr Bechwati, Associate Professor, Bentley University. “Those spendings are not on big items like houses or cars. People are spending on essentials. They are “downgrading” through, for example, buying store brands, consuming more home food and going less to restaurants, and traveling less.”
The WalletHub Economic Index is a monthly survey that evaluates economic prospects based on 10 components of consumer sentiment. These components revolve around how people feel about their finances, purchasing plans and employment opportunities.
- Rising stress: Consumers’ stress levels regarding money are nearly 15% worse in January 2023 compared to last year.
- Low financial optimism: In January 2023, consumers’ optimism about their finances is about 14% lower than it was last year.
- Fewer new employment opportunities: The share of consumers who feel new employment opportunities are “abundant” is more than 7% lower in January 2023 compared to last year.
- Weak sense of job security: People’s confidence in having a job in six months is 7% weaker in January 2023 compared to last year.
- Real estate declines: Home-buying interest among consumers decreased slightly (-1.8%) during the past year.
“Both in the short and long terms, improving one’s financial health starts with having an accurate account of the income and expenditures – where is the money coming from and where is it going to!! In this basic calculation, one needs to review their sources of income and try to strategize about enhancing it, may be by doing more or picking up an extra gig,” pointed out Mohan Menon, D.B.A., Professor and Department Head, Department of Management & Marketing, University of North Georgia. “But, since income is less controllable compared to expenditures, consumers need to break down their spend into non-discretionary (ex. mortgage, rent, food, etc.) and discretionary (ex. new clothes, vacations, etc.). Online spending trackers help in this process. Tracking spending over a few months provides a clearer picture of spending habits and this forms the basis for a good personal budget and financial plan. The essence of spending tracking and budgeting is to control unnecessary spending.”
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