American households are not optimistic about the prospect for improvement in their financial position moving into the new year. A recent Bankrate survey conducted by YouGov found that 2 in 3 consumers expect their personal finances to worsen or remain the same in 2022. Obstacles cited in the poll include rising inflation, fear of Covid-19, increasing levels of debt, and wage stagnation or decline. The survey was conducted near the onset of the Omicron variant outbreak and does not reflect the recent surge in daily Covid cases. The level of pessimism was also directly related to age, with less than 25% of Baby Boomers expecting a better 2022.
Meanwhile, while consumer confidence rebounded somewhat in mid-2021 as the economy reopened, confidence declined again in recent months and remains well below pre-pandemic levels. These results may reflect a sense of helplessness in the face of challenges outside our personal control. For example, the Bankrate poll found that 57% of Americans who expect their position to worsen blame political leaders in Washington.
Given the challenges before us over which we have no control, the key to a better year ahead is to focus on the things we can control.
Whack away at debt. Household debt surged to a record $15 trillion in the 3rd quarter of 2021 according to the New York Fed. And while the ability to service that debt has improved on average, many households still carry balances on high-interest credit cards. Aside from loan sharks, credit card debt is the most pernicious threat to family finances with average interest rates exceeding 16% and some well above 25%. Making a plan to pound down some of that debt may be the most significant step you can take to regain control of your finances and becomes especially important as interest rates begin what may be a steady march higher.
Repair spending leaks. Step one in financial planning is “make a budget”, and that remains an important priority. But even short of a complex monthly budget, identifying all spending over a period of time can help identify potentially significant outflows you may not be fully aware of. Write down everything you spend no matter how seemingly trivial and you may be surprised to find more leakage than you realized. There are several free apps that can help make the process easier, and using that tracking data to reduce unnecessary spending also reinforces a sense of control.
Learn something new. We do a poor job of financial education in America, so many of us learn (or fail to learn) financial lessons in the school of hard knocks. Take advantage of the wealth of free personal financial education available today to enhance your own financial literacy or improve your investment knowledge. Hundreds of resources from videos to full courses are available at no charge through providers like Coursera (University of Florida), Missouri State University, Khan Academy, Alison, MRUniversity and dozens more. Knowledge is power.
Challenge yourself. Financial “challenges” have become popular of late but can also help provide the motivation to persevere. For example, you might create a “savings challenge”, to put away and extra ten bucks from the next paycheck, then increase the amount by an additional $5 each week until the end of the year. Mind games can be important tools to help us reinforce positive behaviors.
We may not be able to directly control the virus or politicians or inflation, or any number of other exogenous factors that may lead to a sense of helplessness. But there are always many things over which we can exert control. Identifying a few specific things and then mastering them can lead to a distinct improvement in your 2022 finances, come what may.
Christopher A. Hopkins is a chartered financial analyst in Chattanooga.