Why Do Americans Feel Financially Strained Despite Being Wealthier Than Ever?

Diccon Hyatt is a seasoned financial and economic journalist who has extensively covered the pandemic-era economy through hundreds of articles over the past two years. His work simplifies complex financial topics, focusing on how economic trends impact individual finances and the broader market. He has also contributed to U.S. 1, Community News Service, and the Middletown Transcript.

Key Insights

• According to a landmark Federal Reserve survey, U.S. household wealth and income reached record highs in 2022, even after adjusting for inflation.
• Contrary to these figures, multiple surveys reveal that many Americans feel financially worse off compared to pre-pandemic times.
• This disconnect may stem from varying experiences across households, with some struggling financially despite overall improvements.

There’s a puzzling trend in how Americans perceive their financial health.

Despite measurable increases in wealth and income, many report feeling financially strained.

The Federal Reserve’s recent report shows that U.S. households emerged from the pandemic in stronger financial positions across income, assets, net worth, and reduced financial vulnerability.

Yet, simultaneous polls reflect growing pessimism about personal finances, highlighting disparities not captured by broad economic indicators.

“Averages can conceal significant disparities,” explains Michael Klein, economics professor at Tufts University and executive editor of Econofact.

The Fed’s triennial survey, spanning periods before and after COVID-19 disruptions, surprisingly indicates improved average financial health.

For instance, median household pre-tax income rose from $68,454 in 2019 to $70,259 in 2022 (inflation-adjusted), signaling enhanced purchasing power despite rising living costs.

Income gains reflect a robust pandemic-era labor market, where wages outpaced inflation due to early retirements and increased competition for workers. Even lower-income earners saw income growth, though high earners benefited most, as illustrated below.

Despite these gains, polls reveal many Americans feel financially worse off. A January 2023 Gallup survey found 50% felt worse financially than a year prior, compared to 35% who felt better. This contrasts with January 2019, when 50% felt better off and only 26% worse.

Digging into the Fed’s data reveals dramatic improvements in typical household finances, underscoring the gap between reality and perception.

Median household net worth surged 37% to $192,900, the highest ever recorded. The average net worth exceeded $1 million for the first time in 2022, driven by gains among the ultra-wealthy.

Home price appreciation played a major role, with values rising 45% between February 2020 and June 2022 due to low mortgage rates and remote work trends. Median households gained nearly $63,000 in home equity alone.

Financial vulnerability indicators improved too, with debt-to-income and payment ratios falling to record lows, alongside fewer bankruptcies and late payments.

Retail sales data confirms that consumer spending remains strong.

The 2022 Survey of Consumer Finances, conducted by the National Opinion Research Center at the University of Chicago with 4,602 families, remains the definitive source on household wealth distribution.

Yet, despite these positive indicators, public sentiment remains bleak. An ABC News/Washington Post poll in November 2022 showed 43% felt financially worse off than two years earlier, while only 18% felt better.

Consumer confidence and sentiment indexes have dropped sharply since 2020 and remain below pre-pandemic levels.

Several factors may explain this disconnect:

• Aggregate data masks disparities. Pandemic relief programs temporarily boosted incomes, especially for low earners, but their expiration led to significant financial setbacks, including a resurgence in child poverty.
• The psychological impact of massive job losses and historic inflation has heightened feelings of financial insecurity, even as conditions improve.
• Political polarization influences perceptions, with individuals’ financial outlooks often aligning with partisan views and media narratives that may exaggerate economic challenges.

“People have lived through unprecedented volatility,” says Klein. “Even if things are stable now, there’s a lingering sense of vulnerability compared to the pre-pandemic era.”

“Political rhetoric can amplify fears, despite statistics showing otherwise,” he adds.

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