Federal job cuts often spark debates between those who rely on government services and those who think spending should shrink. But the reality is more complex. As layoffs unfold, it’s clear that the effects ripple well beyond government offices, impacting employment, wages, and economic growth for everyone.

Government job cuts so far

February’s employment report was below the standard of recent months. Job gains of 151,000 were below the average of 168,000 for the prior 12 months. A closer look at the numbers suggests they could get much worse.

In February 2025 alone, the government announced over 60,000 job cuts. And yet, February’s jobs report stated that federal government employment declined by just 10,000 jobs. It seems the bulk of the job cuts are not yet reflected in the official employment numbers.

Many more job cuts are expected. And the disruptive environment may also lead to an upturn in resignations.

Beyond the decline in federal jobs, such massive layoffs will likely have much broader impacts.

Broader impact on jobs and wages

The news has been full of images of tearful workers carrying boxes of their personal items out of government offices after they’ve been laid off. You may or may not feel sympathy for these workers. Either way, you might like to be aware of the impact of the layoffs on your job situation. Over the last three years, workers have generally benefitted from a robust job market.

• Unemployment has been much lower than usual. Over the past three years, the unemployment rate has averaged just 3.8%, far better than the 50-year average of 6.2%.
• Wage growth has been strong. Over the past three years, the average wage growth rate has been 5.5%. That’s clearly above the inflation rate of 4.1% over that same period. It’s also better than the historical average wage growth rate of 3.8%.

These two things are related. Naturally, when the unemployment rate is low, finding a job is much easier. Also, low unemployment creates a strong labor demand, forcing employers to pay higher wages.

These conditions may change rapidly. Not only will laid-off federal employees have to look for new jobs, but anyone else looking for work will suddenly find much more competition. In the months ahead, many more former government workers will go after private sector jobs.

This sudden surge in the labor supply could also affect wages. When job seekers are plentiful, employers know they don’t have to pay as much to attract and keep workers. This could stunt wage growth in the future.

Impact on consumer spending

Beyond the impact on employment, job cuts can also dent economic growth. Personal consumption represents just over two-thirds of GDP. Strong consumer spending has been a key factor in recent economic growth.

However, the tens of thousands of workers sidelined represent many consumers who will be spending less rather than more. This would make GDP growth harder to sustain.

Impact on government contractors

The cuts to federal jobs could lead to secondary cuts by businesses that depend on the federal government. This includes government contractors who see cuts to spending programs for their goods and services.

It also includes ordinary businesses in areas with large numbers of government employees. Whether it’s a department store or a restaurant, when unemployment rises in an area, employers in that market feel the pinch. That could jeopardize the survival of some of these businesses or at least force them to make layoffs.

Preparing your finances

Massive cuts in federal jobs and programs could affect your finances even if you don’t work for the federal government. Here are some ways to prepare:

• Consider how vulnerable your job is. If your employer is a government contractor or serves a market with a heavy concentration of government employees, you might consider a move to an employer less sensitive to federal cuts.
• Pay down debt. Rising unemployment and slower wage growth could make it more challenging to make ends meet in the months ahead. That could make debt more burdensome.
• Get your credit score in the best possible shape. While you should be reducing debt, you still want to maintain your access to credit. If the economy weakens, expect lenders to tighten standards. Raising your credit score may allow you to continue to meet their standards.
• Build up emergency savings. This is the best way to weather a financial storm. Emergency savings help you avoid the expense of borrowing to make it through hard times.

Navigating the impact of federal job cuts

Federal job cuts have already begun to reshape employment dynamics. While initial effects are visible, the full ripple effect on wages, spending, and private-sector hiring may take time to unfold.

If you enjoyed How federal job cuts could affect the economy and your finances you may like,

• 10 popular jobs with credit building challenges
• What gets reported to the credit bureaus?
• Your full credit picture at a glance

Disclaimer: The article and information provided here are for informational purposes only and are not intended as a substitute for professional advice

The post How federal job cuts could affect the economy and your finances appeared first on Credit Sesame.

Turning 30 has long been seen as a significant life and financial milestone. For some, it marked homeownership, stable careers, and growing savings. For others, it meant struggling with debt, rising costs, and shifting economic realities. Each generation has faced unique financial conditions at 30, shaped by job markets, inflation, home prices, and access to credit. Boomers built wealth early, Gen X embraced credit, millennials faced financial setbacks, and Gen Z navigates a high-cost economy.

Income at 30: A shifting baseline

Each generation has entered the workforce under different economic conditions. Boomers benefited from post-war prosperity, while Gen X saw the rise of globalization. Millennials entered a job market weakened by the Great Recession, and Gen Z faces an evolving, technology-driven economy.

• Baby boomers (born 1946-1964) typically had stable, full-time employment with salaries that allowed for comfortable living. Wages kept pace with inflation, and many households could thrive on a single income.
• Gen X (born 1865-1980) entered a workforce shaped by outsourcing and automation. Wage growth slowed, and dual-income households became necessary for financial stability.
• Millennials (born 1981–1996) struggled with wage stagnation despite rising productivity. Many hit 30 with lower inflation-adjusted earnings than previous generations.
• Gen Z (Born 1997-2012) faces an uncertain job market shaped by AI, automation, and the gig economy. Remote work and multiple income streams are becoming more common.

Cost of living: Then vs. now

The cost of essentials like housing, healthcare, and education has shifted dramatically across generations. Boomers saw a more balanced ratio between wages and expenses, but younger generations face higher costs with comparatively lower wage growth. According to a report from the National Association of Realtors, the median age of first-time homebuyers has now reached a record high of 38, up from the late 20s in the 1980s. This reflects how rising home prices have made it more difficult for younger generations to afford property at the same stage in life.

• Baby boomers could afford homes, healthcare, and education without excessive debt. A single salary was often enough to support a family.
• Gen X saw rising living costs but still had access to affordable homeownership and employer benefits. Credit cards became a common way to manage expenses.
• Millennials faced rapidly increasing housing costs, student debt, and stagnant wages, forcing many to delay major financial milestones.
• Gen Z is entering adulthood amid high inflation and soaring rent prices. Many rely on financial technology and budgeting apps to manage costs.

Homeownership at 30: Who could afford it

Owning a home at 30 was once an expected milestone. As housing prices have increased and lending standards have changed, homeownership has become more difficult for younger generations. A report from the Stanford Center on Longevity found that individuals born in the early 1980s were less likely to own a home by age 30 compared to those born around 1960, and those who did own homes carried higher mortgage debt burdens.

• Baby boomers could buy homes on modest salaries. Mortgage rates fluctuated, but prices were relatively affordable.
• Gen X still had access to homeownership, but two-income households became the norm for affording a mortgage.
• Millennials faced the 2008 financial crisis, rising home prices, and increased down payment requirements. Many delayed buying a home until their 30s or beyond.
• Gen Z is entering a competitive housing market with higher interest rates, making alternative ownership paths like co-buying or rent-to-own more attractive.

Debt and credit: The generational divide

The role of debt and credit has evolved significantly. Earlier generations relied more on employer benefits and pensions. Younger generations need strong credit for everything from renting an apartment to securing a car loan.

• Baby boomers had less reliance on credit scores. Many secured loans based on income and job stability rather than credit history.
• Gen X experienced the rise of credit card debt and the introduction of risk-based pricing in lending. Credit scores became more important.
• Millennials carried the highest student debt burden in history and also needed good credit for loans, rentals, and even job applications.
• Gen Z is more credit-conscious than previous generations, adopting credit-building strategies earlier through secured cards and fintech tools.

The evolving importance of credit at 30

Access to credit has changed over time. Boomers and Gen X had fewer barriers to loans. Millennials and Gen Z must navigate a financial system built around credit scores.

• Boomers often secured home loans without strong credit histories. Lenders relied more on stable employment and income.
• Gen X experienced the rise of risk-based lending. Credit scores became more important as lenders began using them to determine interest rates and loan eligibility.
• Millennials faced stricter lending requirements after the 2008 financial crisis. Good credit became necessary for renting, securing loans, and even job applications.
• Gen Z is entering adulthood with more credit-building tools available. Rent reporting, credit-builder loans, and secured credit cards help establish credit earlier than previous generations.

The financial reality of turning 30: A generational perspective

Economic conditions have shaped financial stability, or instability, at 30 for each generation. Boomers and Gen X benefited from lower costs and stable job markets. Millennials and Gen Z have had to approach financial milestones differently. SmartAsset outlines key financial milestones to aim for by 30, including building an emergency fund, paying off high-interest debt, and beginning to save for retirement.

• Baby boomers built wealth through affordable housing, pensions, and stable wages.
• Gen X benefited from homeownership but faced increasing reliance on credit.
• Millennials encountered stagnant wages, student debt, and delayed financial milestones.
• Gen Z is adapting to high costs with side hustles, gig work, and fintech solutions.

Building credit to overcome financial hurdles

Economic challenges have made wealth-building harder for younger generations, but strong credit can provide financial leverage. Responsible borrowing, strategic credit use, and understanding modern lending practices are essential for navigating today’s financial landscape. Each generation has faced unique obstacles, but those with strong credit histories consistently have more opportunities to achieve financial security.

If you enjoyed How financial milestones at 30 have changed across generations you may like,

• Credit knowledge: Gen Z vs. Millennials
• A guide to understanding your credit score
• The most complete view of your credit score with Sesame Grade

Disclaimer: The article and information provided here are for informational purposes only and are not intended as a substitute for professional advice

The post How financial milestones at 30 have changed across generations appeared first on Credit Sesame.

Conflicting financial data can be a real head-scratcher. A mid-March 2024 report from the Federal Reserve showed that household net worth had reached an all-time high. The same report showed that household debt was also at a record high. This seems like a contradiction: Americans are wealthier than ever before yet owe more money than ever before.

The key to understanding that contradiction is recognizing that the data represents two types of people: net savers and net borrowers. Not only are these two groups in very different financial shape, but conditions recently have shifted decidedly in favor of one group over the other.

Wealth and borrowing are at record levels

One way to understand the apparent contradiction is to consider the various data points separately. Since the Great Recession ended in 2009, total U.S. household wealth has risen steadily to an all-time high of $156 trillion.

The chart shows that from the end of 2009 through the end of 2023, U.S. household net worth rose from $61.6 trillion to $156.2 trillion. It’s been a reasonably smooth ride, with just a few minor hiccups. The latest setback was in 2022, but household wealth shook off that setback and rose to new heights in 2023. This progress was thanks to strong asset growth.

From the end of 2009 through the end of 2023, the value of household assets grew from just under $76 trillion to $176.7 trillion. Net worth is calculated by subtracting liabilities from assets. Liabilities have grown even as assets have soared:

That period from the end of 2009 through the end of last year also showed persistent growth in household liabilities, which include various forms of debt. The pace of this growth has picked up over the past three years, bringing household debt to a record high of $20.5 trillion.

One explanation for why both assets and debt have grown so consistently over this period is that it was a great time for investment returns and a great time to borrow money. Different households embraced one or the other of those two experiences.

2010 to 2021 was a great time to borrow

First, let’s look at why so many households found borrowing money so attractive in the period following the Great Recession from mid-2009.

The above chart shows the Fed funds rate over the past 50 years. Since interest rates represent the cost of borrowing money, this chart can give you some idea of when borrowing has been expensive and when it’s been cheap. Over the past 50 years, the Fed funds rate has averaged 4.8%. However, in the aftermath of the Great Recession, it plunged to nearly zero—and stayed there until 2022.

While interest rates like credit card APRs and mortgages vary, the Fed funds rate gives a general idea of interest rate trends. What this chart shows is that from roughly 2010 through 2021, borrowing was unusually cheap. In effect, people were strongly encouraged to borrow during that period.

Stocks and real estate have provided strong asset returns

The flip side of low interest rates is that they are not very rewarding to people with traditional deposit products like savings accounts and CDs. These people earned very little return on their savings from 2010 to 2021, often not even enough to keep up with inflation.

On the other hand, though, the period following the Great Recession has been very good for real estate and stock market returns. Since the end of 2009, home prices nationally have more than doubled. The value of the S&P 500 has more than quadrupled.

Rates returned to normal last year, but borrowing kept on growing

In short, since the Great Recession, the U.S. has seen an extended period when borrowing was unusually cheap. That helps explain the record amount of debt American households amassed. The same period saw unusually strong growth in asset values, which explains why net worth has reached a record high. This isn’t so much a contraction as it is a view of two distinctly different types of financial behavior.

While many households have assets and liabilities, what matters is net worth, whether they have significantly more assets than liabilities or vice versa. While borrowing was unusually attractive for many years, that has now changed. The last few years saw the Fed funds rate rise to 5.33%, about half a percent above its 50-year average.

Most of the years since the Great Recession featured extremely low interest rates that encouraged record borrowing. Those same low rates punished savers in traditional deposit accounts, helping to push money into investments. This helped boost stock and real estate values.

Now that interest rates are higher, savers who invested in stocks and real estate still benefit from high asset values. For heavy borrowers, though, the script has flipped. The super-low interest rates are gone, leaving many in debt for extended periods.

If you enjoyed Americans are wealthier and more in debt than ever you may like,

• Americans say they would prioritize saving and debt reduction
• U.S. national debt in the spotlight in January 2024

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post Americans are wealthier and more in debt than ever appeared first on Credit Sesame.

You could say investors make much about nothing. But when the “nothing” is the rise in consumer prices, it is potentially a big deal.

A favorable report on inflation sent positive shock waves through the financial markets. As investors tend to do, they projected the news into the future and liked what they saw. A pause in price increases during October could be a significant step towards taming inflation. That would have many positive implications for consumers, interest rates and stock and bond prices.

As encouraging as the news was, a little perspective suggests there is still a need for caution where inflation is concerned.

Zero inflation for October

On November 14, 2023, the Bureau of Labor Statistics (BLS) announced that the seasonally adjusted Consumer Price Index (CPI) was unchanged in October. That essentially meant no inflation for the month. In the context of the past couple of years, that represented a very refreshing break.

The last time the US enjoyed a month without inflation was July 2022. That helps explain why October’s CPI announcement was so welcome and why it should be treated with some caution.

Since the last time there was no change in CPI, monthly seasonally adjusted inflation numbers have ranged from 0.1% to 0.6%. That may sound like a relatively narrow range, but projected over an entire year, those inflation rates would represent the difference between annual inflation of 1.2% and 7.4%, quite a significant difference.

We can conclude two things:

• Month-to-month inflation numbers tend to vary widely
• The 0% inflation reading in July of 2022 proved to be the exception rather than the rule

Any given month’s CPI number should be read in the context of a broader trend rather than as a stand-alone picture of the state of inflation. While this more measured view of inflation may not justify investors’ jubilation after November 14th’s CPI announcement, it allows for some optimism.

Monthly inflation numbers can be all over the map; the increase in CPI was 0.6% just a couple of months ago. However, when you put together the monthly numbers for the past year, you find that CPI rose by 3.2% overall. Considering that annual inflation peaked at 8.9% in mid-2022, things seem to be moving in the right direction.

Other signs inflation is easing

Besides a quiet month for the CPI, there are other reasons to be optimistic that inflation is easing.

Core inflation

So-called “core inflation,” which excludes the volatile food and energy sectors, dropped to a 4.0% 12-month increase in October. That’s the lowest it’s been since September 2021.

While core inflation is of limited interest because it would be tough to imagine consumers getting by without spending money on food or energy, it does give deeper insight into inflation. The food and energy sectors are major CPI components subject to large month-to-month price swings. Thus, they tend to dominate month-to-month changes in the CPI overall. Excluding them from core inflation reflects how broadly price trends are reflected throughout the economy. The more broadly-based inflation is, the more staying power it’s likely to have.

Producer prices

A day after the CPI report was released, the BLS issued its monthly report on the Producer Price Index (PPI). This index measures the prices retailers and other providers of goods and services pay.

The PPI declined by 0.5% in October 2023. This was the largest decline in producer prices since April 2020, when much of the economy was shutting down due to the pandemic.

Month-to-month price levels in the PPI tend to jump around more than those in the CPI, as retailers typically shield consumers from some of the price volatility they experience. However, over time, price trends in the PPI will likely be reflected in consumer prices. While no conclusions should be drawn based on one month’s worth of producer price data, such a significant price decline helps slow inflation’s momentum.

Market reaction

Investors were ecstatic about signs of easing inflation. When the CPI report came out on November 14, the Dow Jones Industrial Average surged nearly 500 points. Bonds also rallied on the news.

Not only would slower inflation stop rising prices from squeezing consumer budgets so much, but it would also allow interest rates to fall. Lower interest rates boost investment prices and also encourage economic growth.

While there’s no doubt that there’s a lot to cheer in signs that inflation might be easing, there are still some reasons to be cautious:

• October’s CPI report benefited from a 4.5% drop in energy prices. Energy is a volatile sector and just as likely to rise suddenly as it is to fall.
• The anticipation that weaker inflation might prompt the Fed to cut interest rates ignores that, as of its latest economic projections, the Fed expects one more rate hike this year.
• Along with the encouraging CPI and PPI numbers, the hope that the Fed may stop raising rates stems partly from a relatively weak employment report for October 2023. However, the jobs figure was affected by labor strikes. With autoworkers and the Screen Actors Guild having resolved their labor disputes, strong job growth and the wage pressures that come with it may return.

What’s next?

At this point, concern about the direction of inflation and interest rates focuses on three key upcoming events:

• On November 30, 2023, the Bureau of Economic Analysis will release its monthly Personal Income and Outlays report. This will include the latest data on the Personal Consumption Expenditures price index, a key measure of inflation followed closely by the Feds.
• On December 8, 2023, the BLS will release its November employment report. This will show whether October’s weak employment growth was an outlier or the beginning of a trend.
• The Federal Reserve’s last meeting of 2023 will occur on December 12 and 13. This will be significant not just for the Fed’s decision on whether or not to raise rates but also for releasing its updated economic projections. Those projections will provide the latest information on where the Fed thinks the job market, inflation and interest rates will head in the upcoming year.

Strong market reactions to recent inflation news show how dominant inflation has been in recent years and how starved investors are for good news.

If you enjoyed Static CPI leads to optimism about inflation you may like,

• Do current economic conditions mean a soft landing for inflation?
• What is the impact of inflation on consumer credit?

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post Static CPI leads to optimism about inflation appeared first on Credit Sesame.

This year’s graduating classes left school to join a booming job market. For some, though, their introduction to the workplace may not be quite so welcoming.

While the job market remains strong, certain areas show signs of weakness. Recent college graduates may find they are the most vulnerable part of the workforce.

A realistic view of job prospects in the months ahead is critical for new grads who want to prevent a bumpy start to their careers from turning into longer-term financial problems.

Labor remains in high demand

In many ways, this year’s job-seekers have a lot going for them.

In August, the U.S. job market posted its 32nd straight month of growth. This brought the total number of jobs to an all-time high.

In fact, there aren’t enough workers to fill all of today’s jobs. According to the Bureau of Labor Statistics (BLS), there are currently ten job openings for every seven people looking for work.

All of this seems as though it should be a very welcoming environment for anyone entering the job market. However, as most people who’ve ever looked for work have experienced, the job market isn’t quite that simple.

Signs the trend may be changing

One of the tricky things about economic trends is that they are constantly changing. Numbers that measure where the economy is now are less important than where those numbers are going in the months ahead. There are reasons to believe recent strong employment trends may not last.

While employment overall may remain high, what matters to people just entering the job market is how fast that market is creating new jobs. Even if the number of jobs doesn’t start shrinking, a slower pace of job growth would mean fewer new opportunities. That affects people looking to start their careers much more than it does people who are already working.

That’s why new grads need to be realistic about things that may slow job growth in the months ahead.

A winning streak can’t go on forever

As mentioned above, the job market has now grown for 32 straight months. That may sound great, but it’s also scary when you consider that job markets are cyclical.

While the number of jobs has grown over time, it hasn’t risen in a straight line. The economy has typically gone through phases where the number of jobs grows, followed by periods when it shrinks.

In the case of the job market, the idea that a winning streak can’t go on forever is more than just a numbers game. It reflects the reality that there are practical limits to how quickly companies can hire new workers. After periods of rapid hiring, it usually takes some time to assimilate the added workforce before the next hiring binge. This is especially true if the economic outlook makes employers more cautious about taking on new headcount.

The economy is slowing

The economy is giving employers a reason to be more cautious. The most recent data from the Bureau of Economic Analysis show how the inflation-adjusted growth rate of the economy has slowed over the past year:

GDP growth is still in positive territory, but it’s not heading in an encouraging direction. Besides the recent numbers, the reasons behind those numbers give many economists cause for concern. A record amount of consumer debt has sustained economic growth. Now that higher interest rates have made that debt increasingly more expensive, it’s questionable how long this pace of borrowing – and the growth it supports – can continue.

Hiring managers are getting more cautious

Doubts about the economy may not yet be enough for most employers to start cutting jobs – though there have been some high-profile mass layoffs so far this year. However, when they become concerned about the economy, the easiest thing for hiring managers to do is to slow the pace of new hiring.

According to the latest corporate management survey from the Business Roundtable, that’s exactly what hiring managers plan to do.

The survey found that overall, more CEOs expect their workforces to shrink over the next six months than expect them to grow. When the decision-makers plan to cut jobs, it’s not just job seekers who have to worry. Recent hires should also be concerned, as many companies take a last-in, first-out approach to handling layoffs.

Employment varies depending on where you look

Not only might recent graduates face slower job growth in the months ahead, but some may have to be concerned about the types of available jobs.

According to a recent jobs report from the BLS, some of the strongest areas of the job market include hotel, restaurant and healthcare jobs – perhaps not the careers most college students had in mind.

Besides differences by type of job, there are also significant differences in the strength of the job market from one state to the next.

According to the BLS, the state-level unemployment rate ranges from a low of 1.7% in Maryland to a high of 5.4% in Nevada. A slowing economy may widen some of these regional differences. Depending on where they live, new grads may have to be flexible about relocating to pursue their chosen career.

Graduating to financial challenges

New grads will need to make the best of the changing job market because they will face challenging financial realities.

First, student loan payments have resumed. For recent grads, those payments start coming due six months after leaving college. To be prepared, students should check how much their payments will be and research options like income-driven repayment plans.

While their classroom days might be ending, many recent grads will have to learn new lessons about managing credit responsibly in the months ahead. Along with their diplomas, graduates can expect to receive a flood of credit card offers for the first time. When considering those offers, they should keep the uncertainties of the job market in mind.

According to the Federal Reserve Bank of New York, young adults (18 to 29 years) are becoming seriously late on credit payments faster than any other age group. Over the past year, they also had the biggest increase in the rate of serious delinquencies of any age group. These payment problems are worse for credit cards than for any other payment type.

If, as the plans of CEOs seem to indicate, the job market is on the verge of weakening, recent grads should be especially cautious about using credit. Learning to budget for repayment before borrowing money is key to having positive first experiences with credit cards.

If you enjoyed Changing job market may hit recent grads the hardest you may like,

• Unemployment: How low can it go?
• Federal government Secure 2.0 Act for gig workers

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post Changing job market may hit recent grads the hardest appeared first on Credit Sesame.

1. Consumer delinquencies rise
2. Net worth grew faster than income in updated Federal Reserve study
3. Wage study shows growth for all despite inequality
4. Retail sales beat expectations
5. 9% of American adults victimized by identity theft
6. Leading economic indicators point to a slowing economy
7. Existing home sales continue to slow
8. Consumers to increase holiday spending for a third year
9. Mortgage rates continue to rise

1. Consumer delinquencies rise

More consumers were late with their debt payments in September 2023. Payment delinquency rates rose across all forms of consumer debt measured by the TransUnion Credit Industry Snapshot: auto loans, mortgages, credit cards and unsecured personal loans. Besides more late payments, consumers increased their average balances owed in the credit card, mortgage loan and unsecured personal loan categories. Delinquency rates are sharply higher for subprime customers. For example, while the delinquency rate for credit card payments among prime customers is just 0.20%, it’s 19.82% among subprime customers. See report at TransUnion.com.

2. Net worth grew faster than income in updated Federal Reserve study

The Federal Reserve has released the latest Survey of Consumer Finances, a comprehensive study of household financial conditions conducted every three years. The latest study released in October 2023 found that inflation-adjusted income rose by a modest 3% from 2019 to 2022. Net worth grew more quickly, rising by 37% during the period. This was primarily driven by gains in real estate values. Home owners’ average value of home equity increased from $139,100 to $201,000. The downside of those gains is that home affordability became worse than ever, with the median home price rising to 4.6 times the median family income. See details at FederalReserve.gov.

3. Wage study shows growth for all despite inequality

A new wage study by the Federal Reserve Bank of Minneapolis shows that while the rich have gotten richer over the past 50 years, all segments of earners have achieved inflation-adjusted income growth. The top 10% of U.S. wage earners achieved a 163% inflation-adjusted income increase from 1971 to 2021. For the median wage earner, inflation-adjusted income growth during that period was 80%, while for the bottom 20% it was just 22%. Education and hours worked are significant factors driving wage differences. See study at MinneapolisFed.org.

4. Retail sales beat expectations

Consumer spending continues to prove surprisingly resilient. Retail sales rose by 0.7% in September 2023, more than twice the Wall Street consensus estimate of 0.3%. The news was not entirely positive for the financial markets. Bond prices dropped as yields rose on the retail sales news. 10-year Treasury yields rose by 13 basis points to 4.85%, their highest level since July 27. Yields rose because strong retail sales add more fuel to inflationary momentum. See article at Yahoo.com.

5. 9% of American adults victimized by identity theft

Newly released statistics from the U.S. Department of Justice found that 23.9 million U.S. residents were victims of identity theft in 2021. That represents 9% of the population aged 16 and older. Losses from these frauds totaled $16.4 billion. In 76% of the cases, the losses stemmed from fraudulent use of a specific account, such as a credit card or bank account. See details at BJS.OJP.gov.

6. Leading economic indicators point to a slowing economy

The Conference Board’s Leading Economic Index (LEI) declined by 0.7% in September 2023. Nine of the ten components of the LEI were flat or down, indicating that weakening conditions are widespread. The LEI has now declined every month for a year and a half. Despite such a sustained decline, the index is not yet at a level that indicates a recession, but it does suggest slower growth ahead. See news release at Conference-Board.org.

7. Existing home sales continue to slow

Sales of existing homes fell by 2.0% in September 2023 and are down 15.4% from a year ago. Despite the drop in home sales, the median sales price has risen by 2.8% over the past year to $394,300. The rise in homes is attributed to a relatively low supply of homes on the market. However, these conditions have started to reverse recently, as the supply of homes increased and the median sales price decreased in September. See news release at NAR.Realtor.

8. Consumers to increase holiday spending for a third year

A TransUnion report found that 51% of consumers plan to spend more than $500 this holiday shopping season. That’s up from the 36% who planned to spend that much last year. Just 4% of survey respondents plan to spend less than $100 this year, compared to 17% who planned to keep spending below that level last year. Clothing is the leading gift category among people who plan to spend more this year, followed by gift cards and electronics. See report summary at TransUnion.com.

9. Mortgage rates continue to rise

30-year mortgage rates rose for the sixth consecutive week to reach 7.63%. This marked an increase of 0.06%. 30-year rates are now 1.21% higher than when the year began. The latest increase brought 30-year rates to their highest level since the week of December 1, 2000. 15-year rates rose for a fifth consecutive week to reach 6.92%. See rate data at FreddieMac.com.

Weekly News Headlines from Credit Sesame

• Last week’s news roundup October 14, 2023
• Next week’s news roundup October 28, 2023

The post News roundup October 21, 2023 appeared first on Credit Sesame.

To some extent, financial fitness is in the eye of the beholder. Survey data compiled in late 2022 by Credit Sesame suggest that there are some measurable things that may influence how financially fit people consider themselves.

The things that seem to go hand in hand with how good people feel about their financial fitness are pretty straightforward. However, the survey generated some numbers that can be used as yardsticks for how Americans generally measure their financial condition. A look at those numbers allows you to see how your finances stack up.

Americans overall are feeling in reasonably good shape financially

Overall, the survey found that most people are feeling pretty good about their finances. This was a somewhat pleasant surprise, given how high inflation, rising interest rates and recession fears have been weighing on consumers.

The Credit Sesame survey asked over 1,500 members to rate their financial condition. The choices ranged from a high of “very fit” to a low of “very unfit.” Nearly half of respondents (48.75%) rated their personal finances as either fit or very fit. Another 36.53% put themselves in a middle category between fit and unfit.

Just 14.73% rated their financial condition as either unfit or very unfit. While that’s a fairly small number in percentage terms, when you apply it to the full population it projects out to tens of millions of people. That makes it well worth a closer look at some of the things that seem to make people feel good or bad about their finances.

Credit score and income correlate with how people feel about their finances

Credit scores are designed to help lenders assess the risk of potential borrowers. The numbers suggest that consumers tend to consider some of the same things when thinking about their own financial fitness. Unsurprisingly, respondents with higher credit scores tended to have higher incomes and rated themselves as financially fit.

Income is a big contributor to financial fitness

Salary has a lot to do with how people gauge their financial fitness. Still, having some actual numbers to use as benchmarks is helpful: While having a high income makes it easier to keep your finances healthy, there is more to the story than that.

Ultimately, how well you live within your means is the key to financial health. There are high earners who manage to overspend. There are also people who succeed at living on a modest income by maintaining a tight budget. It is possible to have great credit scores on a low income and vice versa (low credit scores on a high income).

Having savings helps people feel more secure

While earning a lot is great, being able to build up savings contributes even more to financial health. Savings help you withstand financial setbacks and prepare for retirement.

In some cases, the savings numbers were skewed by a couple of people with huge amounts of savings, so Credit Sesame calculated the median savings of each group to produce numbers that were more representative of most of the group.

People who described their finances as very fit had the highest median savings, at $30,000. However, that is not a very high level of savings. Anyone aged 40 or older should have more savings than that built up.

The next two fitness levels each had lower median levels of savings. What is even more telling is that most people who described their finances as unfit or very unfit had no savings at all.

One way to think about financial health is that your first goal should be to make ends meet from year to year. However, an important next step is to start to get ahead by accumulating savings over time.

Late payments are a sign of poor financial fitness

Unfortunately, many people haven’t yet reached the first goal of making ends meet. The survey found that late payments and accounts that have been assigned to a collection agency are very rare among financially fit people. Not surprisingly though, they are more common among people who describe themselves as financially unfit or very unfit.

The problem with late payments or defaulting on debts is that they make the problem worse in the long run. Late fees and higher interest charges will only add to what you owe. Plus, you’ll find it more expensive to borrow in the future.

Getting caught a little short every now and then happens to a lot of people. However, when you habitually have trouble paying your bills on time, it’s a sign that something has to change.

Rate your financial fitness

With the survey results as background, you can better assess your own financial fitness. Here are some things to consider in that assessment:

• Credit score. This only measures how you’ve used credit historically. It doesn’t capture important factors like income, savings or spending. Still, if you can get your score into the high 700s or better, it’s a sign that you have succeeded at using credit responsibly.
• Late payments/collections. These are like flashing warning lights on your car’s dashboard. Late payments or defaulting on debt are a sign that your finances need serious attention as soon as possible.
• Credit card balance. If late payments and collections are flashing warning lights, your credit card balance may be a gentle reminder that your finances need attention. Credit cards are best used as a short-term cash substitute. If you regularly carry a balance on your cards, it’s a very expensive way to borrow money. To be financially fit, you need a budget that doesn’t rely on continued borrowing.
• Income. In particular, consider how your income is growing. When inflation is high you need to keep your income growing to stay ahead.
• Savings. When you’re in your 20s, you should start by trying to set aside enough savings to cushion you against a financial setback. After that, you should be building savings for retirement and other long-term goals.
• Debt-to-income ratio. It’s important not to let your debt payments get to the point where they crowd out routine expenses. Also, even if you can afford your debt payments now, taking on too much debt puts you at a greater risk if you have a drop in income.
• Non-mortgage debt. Not all debt is the same. Mortgage debt is generally offset by equity in a home. However, debt for shorter term purchases that do not have lasting value only subtracts from your net worth.

Financial fitness is similar to physical fitness: a one-time check-up is useful, but what really matters is maintaining the long-term habits that will help you stay fit.

If you enjoyed How do Americans rate their financial fitness? you may like

• Is a good credit score key to peace of mind?
• Credit Explained: Credit, Credit Score, Credit Rating, Credit History and Credit Report

Your credit score made simple with Sesame Grade

You can see your credit picture at a glance with Sesame Ring. The unique user interface enables easy and intuitive review of TransUnion data. Credit report information from all three bureaus is available if you choose to upgrade to Premium. In addition to data and information, the app provides a measure of overall credit health with your Sesame Grade, and provides alerts, personalized action plans and AI-driven customer support. As you embark on your journey of credit and financial health improvement, knowledge is your most potent asset. Insights from all three bureaus can help you make sound financial choices, negotiate from a position of strength, and nurture your credit health. Regular reviews enable you to maintain accuracy, detect discrepancies and shape your financial future with confidence. Remember that credit is a tool that, when used wisely, can open doors to financial opportunities.

Methodology

The Credit Sesame Credit Health and Financial Fitness Survey December 2022 was designed and executed by Credit Sesame using the WebEngage survey tool. The survey sample comprised over 1,500 Credit Sesame members with a credit score distribution resembling the U.S. general population. In aggregate, the sample data is accurate with a 2.5% margin of error using a 95% confidence level.

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post How do Americans rate their financial fitness? appeared first on Credit Sesame.

Wild market swings can make it difficult to know what to do. Risk is amplified. Big market moves are often accompanied by surprising news that can be hard to process. Investors tend to respond by panicking out of fallen investments after the damage is already done or by piling into big winners after the gains have already happened. But the changes can also provide a tremendous opportunity.

Rebalancing is a tried-and-true technique that takes the emotion out of decision-making in volatile markets. It can help you manage risk and capture opportunities.

Given the wild ride the markets have had in recent years, this might be an especially good time to look at rebalancing your portfolio.

What is rebalancing investments?

Rebalancing is a process of putting the mix of investments you own back into alignment. For example, suppose you start with half of your portfolio in stocks and half in bonds. If you had a total of $100,000 invested, you’d have $50,000 in stocks and $50,000 in bonds.

A year later, suppose you find your stocks have dropped in value by 10%, and your bonds have risen by 10%. This would mean you’d now own $45,000 worth of stocks and $55,000 worth of bonds.

As a result of those changes in value, your portfolio would no longer be a 50%/50% stock/bond mix. It would now be 45% stocks and 55% bonds. Rather than let your asset allocation continue to drift, you might decide it was time to reset that allocation based on a conscious decision. There are a couple of ways to approach this.

Reallocating to benchmark

Benchmarks are the targets that investment portfolios aim for. A 50%:50% stock:bond benchmark is a common one. They can also get much more detailed than that, specifying several asset classes and different subgroups within each.

Regardless of how simple or complex your benchmark is, if it reflects your desired level of risk and market participation, you should periodically readjust your holdings to match your benchmark.

Adjusting to conditions

On the other hand, there may be times when you want to deliberately vary from your stated benchmark or your original asset allocation.

This might be because conditions have changed and now call for a different approach. For example, if interest rates have risen sharply, it affects the relative attractiveness of stocks and bonds. You might want to adjust your asset mix accordingly.

In this case, instead of rebalancing to your original benchmark, you rebalance your holdings to match a new asset mix you feel is right for current conditions.

Why is rebalancing effective?

Rebalancing regularly allows you to apply an intentional approach to investing rather than a more random one determined by changes in value over time. This can help you both capture opportunities and manage risk.

Buying low and selling high

Rebalancing to a target allocation is a regimented way of buying low and selling high.

Assets that fall in value become a smaller portion of your portfolio. Rebalancing will prompt you to buy more of those assets while their prices are low. Assets that rise in value faster than the rest of your holdings become a larger portion of your portfolio. Rebalancing will prompt you to trim some of those holdings to lock in gains while prices are high.

Remaining grounded to your goals

Rebalancing also helps you align your investments with your goals and risk tolerance. If you simply let price changes increase or decrease the size of holdings in your portfolio, your investment mix will drift over time.

Instead, you should set targets that reflect your investment goals. Periodic rebalancing will help you stay close to those targets. It also allows you to adjust to changing conditions.

Why rebalance in fall 2023?

Rebalancing is a sound technique under any circumstances, but there are several reasons why now might be an especially good time to take a fresh look at your mix of holdings.

Recent market volatility

The more prices move in one direction or another, the more it creates a need to rebalance. The past few years have seen a pretty wild ride for investment prices.

First, 2020 saw extreme fluctuations just within the space of a few months. The S&P 500 lost 20% in the first quarter of 2020 when the pandemic hit, but then gained a similar amount the very next quarter. It then put together two strong quarters to finish the year up 16.26%.

Stocks then had an outstanding year in 2021, when the S&P 500 gained 26.89%. However, the market followed this with a miserable year in 2022 when the S&P 500 lost 19.44%. The roller coaster ride has continued in 2023. Stocks started the year with strong gains through the end of July but then headed south again in August and September.

All that volatility creates lots of need to rebalance a portfolio. Doing so can often smooth out the extreme ups and downs to some degree. It’s not just stocks that create the need for rebalancing. Investors often use bonds to cushion their portfolios against the volatility of stocks, but the bond market had its own share of drama over those same three years.

Based on the S&P’s U.S. Treasury Bond Index, bonds were up when stocks were down in the first quarter of 2020 but then were more or less flat the rest of the year. They followed that with a poor year in 2021 when the Treasury Bond Index lost 2.12%. Then came an even worst year in 2022, when bonds lost 10.98%.

As with stocks, the volatility has continued in 2023. Bonds got off to a promising start in the first several months but have been fading since the end of May. Again, it’s been a wild ride and often an unpleasant one for investors. Rebalancing can help you keep a sense of direction and even use some volatility to your advantage.

Differences in sector performance

While stocks and bonds had a wild ride in recent years, the experience of individual sectors of the stock market has been even crazier.

While the stock market as a whole was losing 19.44% in 2022, different sectors of the market were taking very different paths. Sector performance ranged from a high of 59.04% for energy to a low of -40.42% for communication services.

These divergent returns create opportunities to realign individual sectors within a portfolio besides rebalancing the mix of asset classes you hold.

Higher interest rates are a game-changer

Finally, fundamental changes in conditions may prompt you to rebalance your investments in light of the new reality. 2022 saw a sharp rise in interest rates, which continued into 2023. Higher interest rates can be a game changer. Higher bond yields may justify a larger bond allocation than when yields were near zero.

You may also want to look cautiously at sectors and individual stocks that rely heavily on continual borrowing. As higher interest rates raise the cost of debt, it will affect some bottom lines more than others.

These are just some examples of how changing conditions may change your target weightings. With investment prices and conditions changing constantly, rebalancing should be a regular part of your investment routine.

If you enjoyed Rebalancing investments in stormy markets you may like,

• How Inflation Threatens Retirement Savings
• Upgrading Your Investments When the Market is Down

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post Rebalancing investments in stormy markets appeared first on Credit Sesame.

As we enter fall 2023, the news carries conflicting signals about household finances. One report said household wealth had reached a new record. Another showed continued signs of rising debt levels. So which is it? Are Americans getting rich or going broke?

This apparent contradiction between growing wealth and rising debt provides insight into the difference between assets and cash flow. Assets and cash flow are both important to financial security. However, they perform different functions.

Latest Fed figures show record wealth

The Federal Reserve recently reported that the net worth of U.S. households reached $154.28 trillion in the second quarter of 2023. That’s $5.49 trillion higher than the previous quarter, representing an all-time high.

Distributed among approximately 131.4 million households in the U.S., this represents an average net worth of $1.174 million per household. This was partly thanks to a gain of $41,781 in the second quarter of 2023 alone.

This sounds positive but begs the question, why are so many households sinking deeper into debt?

Statistics also point to record debt

In the second quarter of 2023, credit card debt exceeded $1 trillion for the first time ever, according to Federal Reserve Bank of New York figures. All consumer debt now exceeds $17 trillion, another all-time high.

Not only are consumers still borrowing to spend, but interest costs threaten to make that debt grow faster than ever. Credit card rates have risen to an average of 22.16%. That’s the highest level ever reached, according to Federal Reserve data as far back as 1994. Mortgage rates recently reached their highest level since 2001.

In short, debt burdens are not just getting bigger, but the cost of carrying debt has become more expensive. There are signs that consumer budgets cannot keep up. TransUnion’s recent Credit Industry Snapshot shows that not only are average balances up across all consumer debt categories but also delinquencies.

The rising percentage of late payments is evidence that an increasing number of budgets can no longer handle the debt payments consumers have taken on. With student loan payments now scheduled to resume, this problem seems likely to worsen.

Asset-rich vs. cash-poor

To recap, recent reports show that household wealth is at an all-time high, yet a growing number of consumers can’t pay their bills. To understand the contradiction, it’s important to distinguish between asset wealth and cash flow.

Household wealth is primarily made up of long-term investments. For many households, the biggest part of this is the value of their home. Investments such as stocks and bonds also represent a big chunk of household wealth.

Home values took a rare step back in the second half of last year, but they’ve since rebounded with five consecutive monthly rises. As for the stock market, after a bad year in 2022, the S&P 500 earned 13.88% in the first half of this year.

That explains the recent boost in household wealth. However, much of that wealth doesn’t help pay the bills from month to month. Your home gives you a place to live, not short-term liquidity. The money tied up in the house is not readily available to pay the bills. You could borrow against equity in your home, but this would give you more debt to pay off in the future.

As for stocks, fluctuations in the market make it necessary to invest for the long term rather than being able to count on it being a good time to sell these investments whenever you want. Also, stock investments are often tied up in retirement plans. There are generally penalties involved in taking this money out before retirement age.

Thus, the things that have been added to household wealth do not provide the liquidity that helps pay the bills. This requires cash flow – regular income enough to cover expenses and debt. It looks as though cash flow is where households have been coming up short recently.

Signs of going broke aka cash flow running short

The lack of cash flow shows up in multiple ways:

• Personal savings rates have been unusually low since the start of 2022. Prices shot up due to inflation, and households had less money after paying expenses.
• Deposit balances, which soared in the first months of the pandemic, have declined for over a year as consumers burn through their savings to make ends meet.
• Late payments are up over the past year for mortgages, auto loans, credit cards and personal loans as more consumers struggle to pay the debt obligations they’ve taken on.
• Consumer default rates have been rising for nearly two years, perhaps indicating that many borrowers have given up on paying their debts.

In the business world, cash flow is a common cause of bankruptcies. A company may have billions tied up in plant and equipment, but that doesn’t help much if it isn’t earning enough from quarter to quarter to pay operating expenses.

On a smaller scale, you can think of the distinction between personal asset wealth and cash flow in the same way. Owning a home and a healthy retirement account balance are great builders of long-term wealth. In the short term, it’s also critical to have enough cash flow in your budget to meet immediate expenses.

Inflation puts heavier demands on liquidity

Steep price increases over the past couple of years have put a lot of strain on cash flow. In many cases, expenses have risen faster than income. This hurts cash flow much more immediately than it affects long-term wealth. However, as consumers take on more debt, it will also erode long-term wealth. This is especially true at high-interest rates.

While inflation has eased in the third quarter of 2023, it hasn’t gone away completely. And it is unlikely that prices will drop to where they were before the bout of high inflation.

It’s important to take a fresh look at the household budget to address the cash flow issue to account for higher prices. This may require some lifestyle changes to get spending back within the net income coming in. Tough as that may be, this is a better idea than continuing a lifestyle maintained by ever-increasing debt.

If you enjoyed Are Americans getting rich or going broke? you may like,

• Credit Rich and Cash Poor: It Can Happen
• Cash Rich and Credit Poor: It Can Happen
• Why credit building just got more important

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post Are Americans getting rich or going broke? appeared first on Credit Sesame.

1. Fed holds firm but signals more rate hikes to come
2. Consumer price increases cool down
3. Scammers use fake fraud alerts to dupe consumers
4. Consumers see credit access tightening
5. Homeownership by gender is changing for single homeowners
6. Credit problems are rising to pre-pandemic levels
7. Definition of wealth changing according to study
8. Higher earners most likely to be overly optimistic about retirement

1. Fed holds firm but signals more rate hikes to come

On June 14, the Federal Open Market Committee (FOMC) announced that it would maintain the Fed funds rate in a target range of between 5.0% and 5.25%. However, while holding steady for now, the FOMC released economic projections showing it expects the rate will rise to 5.6% by the end of this year. The official FOMC statement said it held steady rates to give the committee additional time to assess economic data. The committee’s projections suggest that it is concerned inflation will be more stubborn than initially expected. The year-end inflation projection is now 3.9%, up from a projection of 3.6% in March. In response, the Fed funds rate projection for the end of this year is now 0.5% higher than in March. Rate projections for 2024 and 2025 are each 0.3% higher than the March versions. See FOMC statement at FederalReserve.gov.

2. Consumer price increases cool down

The Consumer Price Index (CPI) rose by just 0.1% in May. That lowered the inflation rate for the past 12 months to 4.0%, the lowest since March 2021. The decline in the overall inflation rate was helped greatly by a steep drop in energy prices. The energy component of the CPI fell by 3.6% in May and by 11.7% over the past 12 months. However, other areas of inflation are proving more sticky. The core inflation rate, which excludes the food and energy sectors, was up 0.4% in May and 5.3% over the past 12 months. See full report at BLS.gov.

3. Scammers use fake fraud alerts to dupe consumers

The Federal Trade Commission (FTC) has issued a warning about scammers impersonating banks in text messages. The messages claim to warn the recipient about a possible fraudulent transaction. Responders are then contacted by scammers asking them for sensitive information. The FTC advises people not to click on suspicious texts. If you receive a message about a possible fraudulent transaction, check your account online through the bank’s main website to see if such a transaction is pending. If you need to call your bank, contact them using a telephone number you know and not via a number you receive in a text. According to the FTC, consumers lost $330 million last year to scams where somebody impersonated a bank. See article at BusinessInsider.com.

4. Consumers see credit access tightening

The latest Survey of Consumer Finances from the Federal Reserve Bank of New York showed that consumers find it more challenging to get credit than a year ago. They also expect credit access to continue to tighten over the year ahead. As for other aspects of the economy, consumers see inflation easing a bit. The median expectation for inflation over the next year is 4.1%. That’s the lowest inflation reading this survey has gotten since May 2021. Despite the expectation of easing inflation, consumers still don’t see their wages keeping up with rising prices. The median expected earnings growth for the next year declined to 2.8%. See details at NewYorkFed.org.

5. Homeownership by gender is changing for single homeowners

Single women are more likely than single men to own a home. According to a Pew Research Center analysis of recently-released U.S. Census data, 58% of single homeowners are women, while 42% are men. However, this is mainly because women comprise a larger percentage of older single households. Single people aged 65 and over are much more likely to own their homes than younger singles, and there are 6 million more households headed by single women in that age group than those headed by men 65 and over. While single women continue to maintain a home ownership edge over single men, the gap has declined through the years. Since 2000, women have gone from representing 64% of single homeowners to 58%. See analysis at PewResearch.org.

6. Credit problems are rising to pre-pandemic levels

Special financial assistance during the pandemic helped many American households get caught up on their debt payments. Since that assistance ended, credit problems have returned to their previous levels. Delinquency rates on credit card payments increased by 0.18% in the first quarter. That brings them closer to the pre-pandemic level of 2.85%. Meanwhile, net charge-offs have already soared past their pre-pandemic level. Charge-offs are payment amounts credit card companies have given up trying to collect. The percentage of net charge-offs jumped by 0.62% in the first quarter to 3.18%. That puts these problem accounts above their pre-pandemic level of 3.01%. See details at SPGlobal.com.

7. Definition of wealth changing according to study

A new Charles Schwab study measuring attitudes towards wealth found that Americans today believe it takes $2.2 million to be wealthy. And yet, 48% of poll respondents said they felt wealthy despite this group having an average net worth of just $560,000. One explanation for the disconnect is some people may feel wealthy if they are on track toward a sound financial future, even if they are not there yet. This may explain why older respondents were least likely to say they felt wealthy, despite having the highest net worth of any age group. Also, many respondents used a broader definition of wealth than financial worth. Other factors valued by respondents included health, work-life balance, relationships and low stress level. See full study at Schwab.com.

8. Higher earners most likely to be overly optimistic about retirement

A new analysis by the Center for Retirement Research at Boston College found higher earners are more likely to overestimate their retirement readiness than lower earners. While lower earners are at higher risk of being unable to support their lifestyles in retirement, they are more likely to recognize this risk than higher earners. Home values may be one reason higher earners tend to feel overly optimistic. Higher home values may give some an inflated sense of their wealth. See article at PlanSponsor.com.

Weekly News Headlines from Credit Sesame

• Last week’s news roundup June 10, 2023
• Next week’s news roundup June 24, 2023

The post Personal finance weekly news roundup June 17, 2023 appeared first on Credit Sesame.