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How do Americans rate their financial fitness?

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Credit Sesame discusses how Americans rate their financial fitness.

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.

Fitness ratingCredit score (average)Income (average)*
Very Fit780$110,000
Fit742$87,000
Healthy674$69,000
Unfit598$55,000
Very unfit588$40,000
* Rounded to the nearest $1,000

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.

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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.

Richard Barrington
Financial analyst for Credit Sesame, Richard Barrington earned his Chartered Financial Analyst designation and worked for over thirty years in the financial industry. He graduated from St. John Fisher College and joined Manning & Napier Advisors. He worked his way up to become head of marketing and client service, an owner of the firm and a member of its governing executive committee. He left the investment business in 2006 to become a financial analyst and commentator with a focus on the impact of the economy on personal finances. In that role he has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications.

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