2022 Wealth & Wellness Index

Read the Complete 2022 Wealth & Wellness Index

 

Overall, Americans increasingly lack assurance in the U.S. economy (down 2% from this time last year and 12% from pre-pandemic levels), according to a recent Harris Poll survey* commissioned by Personal Capital and Empower. Perceived personal financial health is also flagging; 34% say they are “very financially healthy” today, compared to 48% in the first quarter of 2021.

However, generally speaking, the U.S. economy is rallying. The American stock market rebounded heartily from its 2020 dive into bear territory. And although the pandemic has been highly disruptive to income, the labor market is strong: more than 80% of the jobs lost to the pandemic have been regained, unemployment rates have normalized, and the Great Resignation put jobseekers in the driver’s seat.

Despite surveyed Americans’ general slump in confidence – both at personal and macroeconomic levels – these individuals are, on the whole, actually financially stable. Many people are prioritizing their finances in 2022.

What’s more, according to key indicators of financial wellness in the new Wealth & Wellness Index, a strong majority of Americans are able to meet their basic needs. So why then is financial confidence waning?

Americans Are Facing Numerous Headwinds

Craig Birk, Personal Capital Chief Investment Officer, believes multiple factors are causing anxiety.

1. The past year was generally unsettling.

Morning Consult put it best: “Insurrection. Inauguration. Infection. Inflation.” Indeed, the news that rocked us in 2021 ran the gamut from political to public health to consumer prices.

“We’ve all been reminded that life is volatile,” Birk says, “and that can decrease financial confidence.”

2. Many are starting to feel inflation for the first time.

U.S. inflation rate rose 6.8% in 2021 – the highest increase since 1982.

According to our survey, expense-to-income ratio is a top concern for Americans, with 37% saying they couldn’t handle an unforeseen $100 expense without worry, and 47% saying they couldn’t handle a $500 expense without worry. Nearly half of those surveyed (44%) say that income is the top factor in determining financial health; this is up 10% from last year.

“Inflation has gone from a theoretical concept in the financial media to a daily reality hitting kitchen table discussions,” Birk explains. “The idea that what your income is or what you already have may not really be worth as much as you thought can be disturbing.”

3. The explosion of wealth in the technology sector has left many feeling left out.

And the news is not just true – it’s at investors’ fingertips.

“Never before have so many millionaires and billionaires minted so quickly. Thanks to social media, this wealth is much more visible than it used to be,” Birk says. “For the vast majority who have not become much richer, there is a natural feeling of missing out.”

With all these mounting pressures, it’s a wonder still that surveyed Americans are feeling positive about the future: 40% report feeling both “hopeful” and “optimistic” about their path toward thriving financially.

Perhaps that’s due to their futuristic focus; as we head toward the third year of the pandemic, many surveyed Americans are targeting financial goals with long-term impact.

Financial Goals Are Top Priorities for 2022

This year, financial goals are surpassing lifestyle resolutions like exercising more or losing weight.

“The fact that paying off debt is a higher priority than exercising shows many are wanting to improve their financial health,” says James Burton, Personal Capital Chief Marketing Officer. “It’s clear that financial confidence is intrinsically linked to overall health and wellness,”

Following are survey respondents’ 2022 goals.

For the coming year, survey respondents indicated a handful of areas of both interest and concern. Following are insights around the top four: retirement planning, cryptocurrency, debt, and wage/price challenges.

Retirement Planning

Planning for the future is top of mind for Americans, with “retirement planning” as the financial topic respondents most want to learn about this year.

Here are the financial topics our survey respondents most want to learn about:

For many, retirement is the most expensive savings goal in their lives. And it’s a long game. The process entails:

Determining how much money you will need to live your desired lifestyle in your golden years
Devising a plan to make sure you accumulate this sum before your planned retirement date
Following through until you retire, and then executing a plan for withdrawals from your investment accounts

Get Started: Create Your Retirement Plan

In retirement planning, there’s a lot of nuance and personal decision involved. Fortunately, technology and fiduciary advice can help bring the process into clear focus. Birk offers a suggestion: “Using a good retirement planning tool can be extremely valuable in planning savings or withdrawal rates, as well as investment strategies.”

Cryptocurrency

Following retirement planning, surveyed Americans are most interested in learning more about cryptocurrency. It’s easy to imagine why: Bitcoin and other cryptocurrencies have dominated the financial news cycle throughout this past year (and years prior). In a Personal Capital survey from mid-2021, nearly 1 in 3 survey respondents said they have invested money in cryptocurrency. Their top reason for opting into crypto? 47.2% believe it’s “fun to play with.”

When it comes to investing in cryptocurrencies, Birk considers “the volatility so great that crypto remains more speculative than tactical.” He suggests two paths forward based on a person’s interest, risk tolerance, and financial situation:

“If you are a believer in Bitcoin or other crypto, take the time to learn about the different ways to buy and own it, and consider making an allocation that won’t impact you emotionally if things don’t go well. Fees on most crypto trading tend to be high, even if not immediately visible. Don’t buy and sell crypto frequently; you won’t outguess the fees. Reading up on blockchain and crypto is great if you have the time. They are fascinating. It is easy to get caught up in the excitement, so make sure to always consider the source.”
“If you are not a believer and don’t understand it, don’t worry about it. Any given cryptocurrency may yield high returns or may lose most of its value. That really doesn’t need to impact you.”

Debt

Overall, debt is of increasing concern: 49% of Americans do not feel that their debt is manageable, and only 32% are debt-free (down 7% from last year).

Paying off debt is respondents’ top goal for 2022, with personal debt being the top priority, followed by mortgage and medical debt.

Birk agrees that nixing high-interest debt should be a person’s first financial priority in many cases.

Calculate It: Free Debt Payoff Calculator

However, low-rate debt like mortgages may be worth retaining, based on a person’s overall situation and balance sheet: “Imagine a future where you have a mortgage loan at 3% but bonds are yielding 4% and a diversified portfolio has an even higher expected return – that’s a good environment to create wealth,” he says.

Wage/Price Challenges

With inflation rising and eating up some wage gains from 2021, Americans report that their top barriers to financial health are their salary and increasing expenses.

Moreover, surveyed Americans now say, on average, a person needs to be making $128,000 a year to feel financially healthy. That’s nearly double the national average.

“Making more money is great, but due to the law of diminishing marginal utility, those with higher salaries tend not to be all that much happier,” Birk says. “Regardless of the number on your paycheck, avoiding high-yield debt and saving a meaningful percentage of your income can help promote financial health.”

Learn More: The 50-30-20 Budgeting Rule: Is it Right for You?

5 Steps to Build Financial Confidence in 2022

As a person’s financial life becomes increasingly complex, so does money management. Birk says that his advice for this year is the same as any year. Foremost, have a plan. Here are five steps to creating or furthering your plan.

1. Start with knowing where you stand.

In order to have a financial plan, first you need to know where you stand. Many people don’t know their net worth, how much they’re actually saving, or how they’re really spending their money.

Financial tools can help provide clarity in order to take action. “It is amazing how much of a relief it can be to understand your cash flows, your investments, and where you stand for retirement,” Birk says.

2. Set concrete, time-bound goals.

Once you understand where you are, take some time to think about where you’d like to go. For example: “I want to spend $50,000 in 2022, save $20,000 annually to buy a house in 2026, and retire by age 60.” Periodically check in with your short-term and long-term goals to make sure that you’re hitting the mark. Some people do a monthly money date to review monthly spending and saving patterns.

As you may do in other areas of life, Birk encourages finding a healthy balance.

“COVID reminded us that while it is important to prepare for the future, it is also important to enjoy the present,” he says. “While most people probably should be saving more, we also see many are actually oversaving and potentially missing out on life opportunities.”

How can you have your cash and spend it, too? Carefully consider where you want to park your money for different purposes: ongoing expenses, emergencies savings, short-term and long-term goals, and retirement, to name a few.

3. Find financial allies.

Moral support can certainly encourage a sense of financial confidence. Most Americans we surveyed turn to those they know and trust: family, retirement providers, and financial advisors. However, they sometimes also lean on the internet, friends, and colleagues.

Below is how our respondents ranked their financial allies, both at the start and end of 2021.

While friends and family can cheer you on, be sure to consider how your financial plan may also benefit from professional advice.

Respondents who work with an advisor are:

More likely to be confident in their retirement savings (70% vs. 53%)
More likely to report feeling very financially healthy (46% vs. 31%)
More likely to say their financial health has increased in the past year (70% vs. 59%)

“A good advisor can provide tremendous confidence related to both your investment approach and financial planning in general,” Birk explains. “This person will give you the tools and advice you need to know where you stand and will illustrate the trade-offs between various decisions.”

Birk says that if you already work with someone, be honest with yourself: “Are they adding value and improving your confidence? Also, make sure you know how they are being compensated.”

For instance, a fiduciary financial advisor has a legal duty to act with integrity and make decisions that are in your best interest. A fiduciary whose rates are fee-based is not paid on commission.

Are you paying too much in fees? You can use this free online investment fee calculator to find out.

4. Be wary of bad advice.

Surveyed Americans turn first to their family for financial allyship. Beyond encouragement in reaching financial goals, Birk warns that advice from family and friends can be spotty.

“If this is your source, look toward people who have accumulated wealth and been successful over many years,” he suggests. “Be suspicious of advice from those who started making money on something more recently.”

Meanwhile, the amount of individuals who rely on professional financial advice (22%) sits around the same level as advice found on the internet (21%). Unfortunately, many people avoid professional, personalized help because of negative previous experiences or bad associations with “stock brokers.”

“It is true – working with someone who is primarily looking to earn commissions is not likely to bring a happy ending,” Birk says. “Luckily, there is increasing awareness and information on how to find an advisor you will work well with. Always make sure you understand your investment strategy and how you are paying.”

5. Maintain a dynamic long-term plan.

Your financial plan shouldn’t be stagnant – it should evolve alongside your life milestones, lifestyle goals, and retirement horizon. And it should be personal to you. When this is the case, financial confidence is likely to follow.

“If you know where you stand and what you are doing, then you already know how to execute your plan. You don’t need to scramble,” Birk says. “Then, you can focus on what matters more to you in life.”

 

Want a better way to manage your investments? Millions of people use Personal Capital’s free and secure online financial tools to see all of their accounts in one place, analyze their investments, and plan for long-term goals, like buying a house or saving for retirement.

Get Started with Personal Capital