Impact of Inflation? Saving Money Is a Priority for More Americans Now Than in 2022

Economic uncertainty can be a great motivator for getting your financial house in order — and the events of the last year are the proof. According to a new GOBankingRates survey of more than 1,000 adults, saving money has become a priority for more Americans in 2023 compared to last year.

Why the Increase in Saving?

The study found that 36% of respondents prioritize learning more about saving money than any other financial topic. This is a seven percentage point increase from 2022 when 29% gave the same answer. While rising yields may have played a role in this shift, the tumultuous events of the past year have probably played a larger role.

“In light of recent financial trends, including inflation, recession, and high interest rates, it’s natural that people are increasingly prioritizing saving money today compared to last year,” said Baruch Silvermann, financial expert and CEO of The Smart Investor. “This shift can be attributed primarily to the prevailing financial uncertainty that has emerged.”

The pandemic brought about a temporary economic boom once the world reopened, but it was short-lived. Inflation driven by supply chain disruptions and increased demand, falling stock markets, and raised interest rates to combat inflation reversed the economic recovery — leaving the atmosphere volatile and the need to navigate the changing financial climate. People began focusing more on saving money and creating an emergency fund as a safety net.

Spending Less to Save More

People tend to change how they handle their money during times of financial uncertainty to reduce risks. They make it a priority to save money and create an emergency fund as a safety net. One way to make this happen is to prioritize essential expenses, cutting back on things like eating out, entertainment, vacations, or luxury items that are not necessary. Consequently, the money saved can be used for savings or to pay off debts, making individuals more financially resilient and prepared for any challenges that may come their way.

The Need for an Emergency Fund

Considering the prevalence of simultaneous crises the past year, emergency funds are crucial to mitigate financial risks. Liz Raad, co-founder of the eBusiness Institute, said, “Most earners today have witnessed at least three events that should have been once-in-a-lifetime — a huge financial crisis, a devastating pandemic, and yet another European war that has the potential to trigger a host of other crises and micro crises. In 2023, people are bound to be much more aware that we live in an age of uncertainty than they would have been just 15 or even five years ago.”

The Specter of a Recession Looms

Rising interest rates and high prices may be responsible for the increased interest in saving money, but nothing can frighten people into getting into financial shape like the threat of a job-killing recession. Despite predictions that a downturn was imminent, the economy dodged the bullet in 2022. However, a consensus is building that 2023 may be the year.

Related Facts

• Inflation occurs when the demand for goods and services exceeds supply.
• A recession is defined as a significant decline in economic activity spread across the economy lasting for a prolonged period.
• Emergency funds should have three to six months’ worth of expenses saved.
• Raising interest rates helps combat inflation but also tends to reduce economic growth and increase unemployment.

Key Takeaway

As financial uncertainty continues to loom, saving money and creating an emergency fund should be a top priority. Learning how to live within your means and prioritizing essential expenses are crucial steps in the right direction. Remember that even small steps toward financial stability are significant and can lead to a more secure future.

Conclusion

As the world continues to change and adapt to the current economic landscape, the importance of saving money cannot be overstated. The events of the past year should serve as a reminder that financial stability can be uncertain, and emergency funds can provide much-needed security during difficult times. Prioritizing essential expenses and creating a budget that includes saving can go a long way in creating financial resilience and preparedness for the future.