People are increasingly worried about their financial future, amid policy chaos and a slowing labor market. Things could get worse if tariffs turn into higher inflation, as expected, keep interest rates high and contribute to a further slowdown in the economy.
Eroding economic fortunes in 2025 would be a remarkable turnaround from the trend towards improving financial security in 2024. The Federal Reserve recently released its latest survey of people’s financial situation, conducted in the fall of 2024. Overall, the data show that things got better and people felt financially more secure last year.
The data highlight a number of notable trends. First, things were looking up in 2024. The share of people who had three months of their expenses saved stood at 55.0% in 2024. This was up from 53.8% in 2023 and 54.1% in 2022 (see Figure below). This was the highest share of people with that kind of financial security, outside of the financial bumps during the pandemic, on record, dating back to 2013. People had more financial reserves in 2024 than they had in the pre-pandemic years. This was peace of mind for a growing number of people.
Second, pandemic assistance boosted people’s financial well-being. For example, the share of people who said that they were financially doing okay or living comfortably jumped from 75.4% in 2019 to 76.2% in 2020 and then to 77.7% in 2021. The share of people who said that they three months of expenses saved grew from 53.0% in 2019 to 55.0% in 2020 and to 59.1% in 2021. The jump in 2020 was likely a result of stimulus checks and expanded unemployment insurance, thanks to pandemic legislation enacted in March 2020. The additional increase in 2021 followed from more stimulus checks among a still recovering economy as well as from expanded Child Tax Credit payments. A series of public investments in the economy through the American Rescue Plan certainly did not hurt as it boosted jobs, wages and incomes. Public policy can make people’s lives a lot better, when Congress and the president focus on working families.
Third, the opposite is also true: policy inaction can hurt people. Congress failed to extend the Child Tax Credit expansion in 2021, for instance. People’s financial cushions, built up during the prior two years, eroded, leaving them in worse shape. People no longer got help when they needed it, even as inflation took a toll on their pocketbooks. The share of people who said that they were doing okay financially or lived comfortably dropped to 73.1% in 2022 and then to 72.2% in 2023. Most people were still okay, but a growing share of people started to struggle in those years, once the key and necessary government assistance disappeared. The government can actively make people’s lives worse simply with inaction.
Fourth, people’s retirement prospect continued to recover sharply in 2024. The share of people who said that their retirement prospects were on track rose from a recent low of 39.4% in 2022 to 42.1% in 2023 and jumped to 44.4% in 2024. The improving retirement outlook is obviously welcome news, especially in an aging society, but most people still did not think that their retirement plans were on track last year.
People’s finances improved in 2024, so much is clear. A stable job market in a strong economy helped to fuel higher wages, especially for lower-income workers, and helped to boost people’s savings. The chaos with respect to economic policy emanating from the White House as well as the passage of legislation that promises to slash Medicaid and food assistance could put an end to these improvements in 2025. Again, policy can make a difference in people’s lives and the current direction points to a worsening outlook after improvements last year.
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