Nearly Half of Americans Don’t Foresee Moving Beyond Current Financial Status

The COVID-19 pandemic and the resulting economic fallout have revealed how fragile financial security is for many Americans. It shrunk the portion of respondents to Prudential’s Financial Wellness Census who qualified as financially confident to 36%, down from 40% in 2019, while increasing the number of the discouraged respondents to 33% from 31% only a few months prior. Prudential data shows that people of color, women, younger people, small business owners, gig workers and those employed in the retail industry were disproportionately impacted.

“The first months of the COVID-19 pandemic largely reversed nearly three years of financial gains in the United States, reducing the ranks of American adults who are objectively financially healthy to 50%,” Prudential says.

But issues with financial wellness are not just COVID-19-related. Nearly half of Americans seem to perceive their financial mobility as fixed, according to Prudential’s 2020 census report.

The percentage who had a “discouraged” or “pessimistic” view of their financial future stood at 49% in 2017—during the longest economic expansion in U.S. history—and 47% in 2020—in the throes of a global crisis—revealing a sense of persistent financial inertia. Prudential defines “discouraged” as those people who have a low level of financial health by objective measures and recognize it. Those who are “pessimistic” have a high level of financial health, but nonetheless have a negative view about their finances.

Offering a financial wellness program to employees has been considered a value-added benefit, but the pandemic suggests it is an urgent necessity. “This outbreak has just shone a light on an existing problem: Too many people are already living paycheck to paycheck,” Brian Hamilton, vice president at Smart Dollar, previously told PLANSPONSOR. “American workers are up to their eyeballs in consumer debt. We’re spending more than we make. We have little to nothing saved, and we’re not putting money away for retirement. We will get through this, and when we do, everything must change.”

The Society of Actuaries (SOA) says financial wellness programs need to be designed so individuals of different fragility levels can connect to what is useful and important to their situation. The SOA interprets financial fragility as vulnerability to a financial crisis and having a negative outlook of personal finances.

Those with high fragility are much more likely to have short planning horizons and to prioritize everyday bills over retirement or emergency savings. Debt, especially credit card debt, is a major barrier, with 94% of those with high fragility holding some form of debt and 56% reporting credit card debt.

“Reducing financial fragility is an important step in helping individuals manage the priorities of today and those of the future, especially funding a secure retirement,” the SOA says in its report, “Aging and Retirement: Financial Fragility Across the Generations.”

Prudential says employee benefits are essential to financial health. Asked to identify the workplace benefits and attributes they value most, census respondents most frequently selected retirement savings opportunities, paid time off, and comprehensive health care and prescription medicine coverage.

However, the federal government is viewed as the most common source of financial assistance in times of crisis, cited by 32% of all respondents. This was followed by family and friends (28%), state and local governments (27% and 17%, respectively) and current or former employers (14%).

Prudential suggests that to increase resilience, stakeholders should, among other things, ensure fair access to capital, financial advice and products, especially in communities of color; make affordable, accessible health insurance coverage available to more Americans; continue to invest in social safety nets; provide greater access to retirement plans; and increase access to guaranteed income solutions.