Americans have never been more worried about their finances. But that doesn’t mean they plan to cut back. (2024)

These are some of the findings from Northwestern Mutual’s 2024 Planning and Progress Study, which surveyed 4,588 American adults in January. One-third of respondents, 33%, reported feeling financially insecure, up from 27% in 2023, and the highest share since Northwestern Mutual began measuring financial security in 2012. Only 41% of respondents reported feel very financially secure, the smallest proportion in the history of the report.

There are several reasons for this, Christian Mitchell, chief customer officer at Northwestern Mutual, said at a press event for the survey. Although the economy appears stronger now by traditional metrics such as cooling inflation, lower unemployment and a booming stock market, many Americans have lingering concerns. Since just 2020, they have endured a pandemic that caused rising unemployment, decades-high inflation, and rising interest rates. A contentious presidential election and global instability are unlikely to help matters.

“It’s hard to feel positive”

That recency bias is weighing on many Americans, particularly when it comes to higher prices. Inflation is the “clear factor supporting this insecurity,” according to the report, and is overshadowing much of the positive economic news. More than half of American adults cited it as the biggest obstacle to financial security.

Inflation hit 9% in mid-2022, the highest rate in 40 years, and still remains above the Federal Reserve’s 2% target. High food and housing prices, in particular, are straining budgets: Food prices have increased by double digits over the past three years, and housing costs have never been higher.

Although inflation has cooled recently, more than half of respondents expect it to continue rising, and only 9% of households said their income is growing at a faster rate. Americans want prices to return to pre-pandemic levels, the Federal Reserve has said, but that is not happening.

“‘Financial shock fatigue’ and fragility are preventing people from having positive feelings about their own financial security,” Mitchell said in a news release. “Despite the growing economy, Americans have had to endure one financial shock after another over the past few years, and it’s hard to feel positive when you don’t know what’s around the corner.”

Higher interest rates, initiated by the Federal Reserve to combat inflation, are compounding Americans’ pessimistic view of the economy. Mitchell noted that it is more expensive than ever to be in debt or borrow money for younger millennials and Generation Z.

This is especially important to consider since total US credit card debt surpassed $1 trillion for the first time in 2023 (partly due to inflation) and continues to grow. Data from Credit Karma shows that younger generations are hardest hit.

“These consumers are increasingly reliant on credit to survive,” Mark Elliot, chief customer officer at LendingClub, said recently. Fortune. “Higher levels of debt hamper the ability to achieve financial goals, but also pose long-term risks to economic well-being and mental health.”

Additionally, it’s hard to overstate how mortgage interest rates and rents are affecting confidence. The median monthly mortgage payment has increased from $1,500 in 2021 to more than $2,600, according to Redfin, while current rents have increased 30% since the start of the pandemic. More Americans have been locked out of the housing market while paying more and more each month for rent.

And economists may actually be underestimating the extent to which rising rates are hurting consumers. A new working paper from a group of researchers, including former Treasury Secretary Larry Summers, concludes that the Bureau of Labor Statistics’ official consumer price index does not fully explain the extent to which rising interest rates make it more expensive. debt, particularly mortgages, but also car payments and credit card debt. When rising interest rates are factored into a new measure of inflation, consumer confidence better matches the rising cost of living.

“Consumers, unlike modern economists, consider the cost of money as part of their cost of living,” the authors note, and “the interest payment on a new 30-year mortgage for the average home has tripled since 2021”.

‘Turn those moments into a plan’

At the same time, Americans do not necessarily plan to reduce their spending, which has kept the economy afloat even amid high prices and interest rates. The report finds that 59% of adults say they will spend the same or more on discretionary purchases in 2024. Generation Z is the most likely generation to say they are not going back, while Generation spent.

Mitchell pointed to a recent Federal Reserve report that showed how people under 40 have seen their net worth increase more rapidly in the years since the pandemic. In turn, they can feel more confident in their ability to spend and continue pursuing other goals, such as saving and investing.

He also highlighted the apparent disconnect between Americans’ perception of their financial security and their plans to continue spending, warning consumers not to ignore the long-term consequences.

“Treating yourself to nice things or experiences can be great if it’s part of a solid financial plan, but if left unplanned, the emotional benefits can be short-lived, or even turn upside down,” Mitchell said. Fortune. “My advice: If you want to splurge, then splurge, but build those moments into a plan so you can feel financially secure and not guilty about them.”