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Many Americans are ending the year feeling gloomy about their finances, and you don’t need to be a psychiatrist to figure out why.
Runaway inflation gnawed through household budgets as prices soared on everything from eggs to plane tickets. Higher interest rates made borrowing money more expensive, pushing home ownership out of reach for many.
A recession appears to be imminent: “2022, like the last couple of years, has put a strain on the American consumer’s finances,” said Rachel Gittleman, financial services outreach manager at Consumer Federation of America, a national network of consumer advocacy nonprofits.
In the early part of the pandemic, relief from the federal government helped keep many households afloat, she noted, but most of that money dried up this year. “Consumers are back to their pre-COVID finances, except now we’re facing record inflation and rising interest rates,” Gittleman said.
Some saw 2022’s financial shakiness as an opportunity to refocus financial priorities. “One of the best results of the turmoil of 2022 is that it has been a wakeup call to Americans to pay more attention to their personal finances,” said Eric Amzalag, a fee-only financial planner in Canoga Park, Calif.
That can mean creating tools like household budgets, expense worksheets or income trackers, and setting targeted savings goals, he said. “Many of my clients have explained to me that the combination of inflation and negative market returns have been a one-two punch that has reminded them that they need to put resources and attention to their financial health.”
But amid 2022’s economic turbulence, there were a few bright spots when it came to Americans’ wallets.
Here’s a look at some of the money-related silver linings to this challenging time:
1. Stocks were ‘on sale’
Markets were pummeled this year, a worrisome trend for anyone who needed to tap into retirement or college savings. But for people just getting started in investing and saving, the declines in the Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
was a buying opportunity, said some observers.
“Anyone that is in the accumulation stage of their wealth journey and making regular contributions to their retirement or even taxable accounts benefitted from the market going ‘on sale’ for the first time in several years,” said Ron Guay, a certified financial planner with Rivermark Wealth Management in Sunnyvale, Calif.
The down market also created ideal conditions for converting a traditional IRA account into a Roth IRA account, he added. A Roth conversion is attractive when markets are down because if your account has lost value, you’ll pay less tax on the conversion. The value will bounce back over time (hopefully) and that growth will be tax-free.
2. Some student loan debts were canceled — but not the ones you’ve been hearing about
President Joe Biden’s plan to cancel $10,000 in student debt for borrowers earning less than $125,000 a year, and $20,000 for those with Pell grants is on hold pending legal challenges.
But separate from that broad debt-relief effort, some smaller groups of student-loan borrowers saw their debts shrink or disappear in 2022. The U.S. Department of Education canceled $6 billion in debt for 200,000 former students who were allegedly defrauded by their colleges. After years of complaints about the debt relief program for public servants, the Biden administration moved to cancel $24 billion in debt for 36,000 borrowers in the Public Service Loan Forgiveness program.
3. Many major banks continued to scrap overdraft fees
Amid pressure from the federal watchdog Consumer Financial Protection Bureau, some of the country’s biggest banks continued to drop or reduce overdraft fees. Bank of America
BAC,
for example, eliminated its overdraft fees and reduced its “insufficient funds” fee from $35 to $10. “It’s really a charge on those consumers who have the least to lose,” Gittleman told MarketWatch, speaking generally about overdraft fees.
Nearly 80% of overdraft fee revenue is borne by an estimated 9% of account holders, and their average balance is $350, Gittleman said, citing CFPB research.
Bank of America in August reported a 90% drop in fee revenue year-over-year.
Credit-card late fees, which cost consumers an estimated $12 billion per year, could come under scrutiny next. The CFPB took steps toward writing new rules for credit card fees in June.
4. The minimum wage went up in many places
While the federal minimum wage hasn’t budged from $7.25 an hour since 2009, many states, cities and counties moved to increase pay for the lowest-earning workers. “By the end of 2022, 49 jurisdictions (two states and 47 cities and counties) will meet or exceed a $15 minimum wage for some or all employers,” according to the National Employment Law Project. The trend continued with the November midterms when voters approved initiatives to increase hourly wages to at least $12 an hour by 2024 in Nevada and to $15 an hour by 2026 in Nebraska, up from $9 an hour.
5. Bye-bye surprise medical bills
Unexpected medical bills — which can happen even to insured people when they use an out-of-network provider or lab — can do serious long-term damage to people’s finances. In 2022, the practice of “surprise billing” was mostly outlawed when the Trump-era “No Surprises Act” went into effect. The law ushered in a host of protections for consumers who need medical care, including in emergency situations.
MarketWatch explained what is and isn’t covered by the new law here.
“The law is stepping in to protect consumers from an egregious billing practice that has grown in breadth and frequency,” Patricia Kelmar, director of healthcare campaigns at U.S. PIRG, told MarketWatch in January.
6. Some medical debt removed from credit reports
Speaking of medical bills, consumers got another break in that arena when the three major credit reporting bureaus — Equifax
EFX,
Experian
EXPGY,
and TransUnion
TRU,
— dropped fully-paid medical debts from credit reports. Consumers will also get 12 months (up from six months) before unpaid medical debt shows up on their credit report. Starting in 2023, credit reports won’t include unpaid medical debt that’s less than $500.
“The idea of millions of people potentially having old debt just removed from their credit report is a big deal,” Matt Schulz, chief credit analyst at LendingTree, told MarketWatch at the time. “There’s very little in life that’s more expensive than crummy credit.”
Around one in five households in the U.S. report that they have medical debt, according to the CFPB. Past-due medical debt is more common among Black and Hispanic individuals, the CFPB added, than whites and Asians. As of June 2021, $88 billion in reported medical bills were showing up on consumers’ credit records, the CFPB estimated.
7. An ‘exceptionally strong’ labor market
The alleged trend of “quiet quitting” grabbed media attention this year. But plenty of employees were, by official measures, working more than ever. The U.S. had an “exceptionally strong” job market in 2022, said Josh Bevins, director of research at the Economic Policy Institute, a left-leaning think tank, with 4.3 million jobs created through November. That was the second-best performance since 1940, he said, with the first-best being 2021.
That tight labor market brought strong nominal wage growth, which, although it failed to match rising consumer prices, blunted “a LOT of the damaging effects,” he said. Gains were particularly good for low-income workers, who experienced wage growth that “actually beat inflation for most of the past two years.”
8. Higher yields for cash savers, especially those who don’t need the money right away
The Fed’s five interest-rate hikes led to higher annual percentage rates on credit cards and higher mortgage rates, which was bad news for people carrying credit-card debt, or looking to buy a house. But the flip side was better yields on interest-bearing savings tools such as high-yield savings accounts, certificates of deposits (CDs) and the U.S. Treasury’s Series I bonds. Because they are pegged to inflation, I bond yields hit a record high of 9.62% this year, and savers lined up to buy them, also in record numbers.
Of course, people who had cash sitting around to save were among the lucky few. Americans’ personal savings rate — or the percentage of people’s income that’s left over after paying bills and other essentials — dropped to a low of 2.3%, the second-lowest point in more than six decades.
9. Congress paved the way for employers to help workers save cash for emergencies
As noted above, rainy-day savings accounts are a luxury many Americans can’t afford, but they could get some help on that front thanks to Congress’ year-end spending package. Under a set of provisions known as Secure Act 2.0, employers would have the option of setting up emergency savings accounts for their workers alongside retirement accounts. A portion of employees’ paychecks would be automatically deposited into the accounts, which would be capped at $2,500 per year. Only “non-highly-compensated employees,” meaning those who make lhoess than $150,000 a year, would be eligible for the accounts.
10. Housing market is finally cooling, and the surge in rents appears to be easing
The end of 2022 has cast some hope for would-be homebuyers and renters. Rent.com, the apartment search engine, listed the most affordable metro areas, which it said provide a respite from high rental costs. “Single-digit rent price hikes and decreasing month-over-month rental rates in several markets give renters hope that prices may be stabilizing after a period of historic growth,” it said.
Home hunters, especially first-time buyers, will be looking for more affordable places to live in 2023, with the 30-year mortgage interest rate currently hovering around 7%, double the rate this time last year. “Many of these areas flew under the radar in the pandemic frenzy, and are now well-positioned to bubble up with solid job prospects without the big-city price tag,” Realtor.com chief economist Danielle Hale said.
(Realtor.com is operated by News Corp subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, also a subsidiary of News Corp.
NWSA,
)
“The heat will stay on in the Sunshine State, to be sure,” Zillow added in its annual real-estate forecast released earlier this month. “But as affordability has become the key driver of both supply and demand in the market, places that still feature reasonable prices are already seeing momentum shift their way, and should have the healthiest housing markets in 2023.”
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