Credit Sesame’s personal finance weekly news roundup December 17, 2022. Stories, news, politics and events impacting the personal finance sector during the last week.
- Survey finds it’s getting more difficult to feel wealthy
- More people are dipping into their retirement money early
- Household wealth still falling
- Retail spending keeps pace with inflation
- Inflation cools off in November
- Small banks may abandon Zelle over fraud concerns
- Fed raises rates and lowers expectations for 2023
- Mortgage rates drop for fifth straight week
1. Survey finds it’s getting more difficult to feel wealthy
A new report by Edelman Financial Engines found that just 12% of Americans say they feel wealthy. Only 23% feel very comfortable with their financial situation. Even people who have what may seem like a fair amount of money often don’t feel it’s enough to guarantee their security. Fewer than one-third of people with at least $1 million reported feeling wealthy. It seems that as people gain more money, they raise the bar for what it takes to feel good about it. Among the general population, most people said $1 million would be enough to make them feel wealthy. However, among high net worth individuals more than half said it would take at least $3 million. More than one-third of high net worth individuals said it would take at least $5 million. See article at CNBC.com.
2. More people are dipping into their retirement money early
A survey of 401(k) funds found that the number of people pulling money from their retirement savings early is on the rise. While low as a percentage of overall 401(k) participants, the percentage taking a hardship distribution reached a record high in October. Typically, withdrawing money from a retirement plan early incurs a 10% penalty in addition to ordinary tax consequences. People taking such withdrawals cannot put that money back in the plan later on, so it also stunts their retirement savings. The percentage of participants borrowing from their 401(k) balances has also increased. This doesn’t incur tax consequences, but does carry certain risks. See full article at CNBC.com.
3. Household wealth still falling
The Federal Reserve reported that U.S. household wealth fell for a third quarter in a row. Total household wealth fell from $143.7 trillion to $143.3 trillion in the third quarter of 2022. While that’s a $400 billion decline, it only represents about 0.3% of household wealth. The decline is largely due to poor stock market performance in 2022. Before the recent decline, household wealth had hit an all-time high of $150.1 trillion at the end of last year. See article at Reuters.com.
4. Retail spending keeps pace with inflation
Mastercard reported that retail spending increased by 8.1% over the past year. That’s similar to the rate of inflation, meaning that people are buying roughly the same amount as they did a year ago but paying more for it. As people return to shopping in person, in-store spending growth outpaced e-commerce growth over the past twelve months. However, e-commerce is up by a lot more since before the pandemic. Among spending categories, restaurants were the big winner. Spending in restaurants was up by 14.6% over the past year, and by 38.5% since before the pandemic. Both are the largest increases of any spending category. See full release at Mastercard.com.
5. Inflation cools off in November
The Consumer Price Index rose by just 0.1% in November. While inflation over the past 12 months remains very high at 7.1%, it has been rising at an annual pace of just 2.5% over the past five months. The closely-watched core inflation rate, which includes all items except for food and energy, rose by a moderate 0.2% in November. Food inflation remains a cause for concern, with a 0.5% rise in November. However, energy inflation, which was a big problem in the first half of the year, continues to subside. Energy prices declined by 1.6% in November. See full release from BLS.gov.
6. Small banks may abandon Zelle over fraud concerns
As peer-to-peer payment systems like Zelle have become more popular, fraud has become more common. This may stop some smaller banks from continuing to use Zelle. The seven large banks that own Zelle are working out a system by which banks would reimburse customers whose accounts were raided by fraud using Zelle. However, since smaller banks typically have lower profit margins, it might not be worth their while to continue allowing their customers to use Zelle if the bank has to shoulder the cost of fraud through the system. See article at PYMNTS.com.
7. Fed raises rates and lowers expectations for 2023
On December 14, the Federal Open Market Committee of the Federal Reserve announced that it was raising short-term interest rates by 0.50%. With this increase, it will keep rates in a range of 4.25% to 4.50%. The Fed also issued a fresh set of economic projections that reflect growing pessimism about next year. Basically, the Fed now expects more inflation, higher interest rates and slower economic growth than it previously thought. The Fed is now projecting that the Fed funds rate will be 5.1% by the end of next year, up from the projection of 4.6% made in its September meeting. The Fed projects that inflation will be 0.3% higher at the end of next year than previously expected. Also, the Fed is now expecting economic growth of just 0.5% next year, down from its previous 2023 forecast of 1.2%. See full release at FederalReserve.gov.
8. Mortgage rates drop for fifth straight week
Both 30-year and 15-year mortgage rates declined for the fifth consecutive week. 30-year rates fell by 2 basis points, to 6.31%. 15-year rates had a more substantial decline of 13 basis points, to 5.54%. While these rate drops represent some relief for would-be home buyers, both 30-year and 15-year rates remain more than twice as high as they were when the year began. See latest rate data at FreddieMac.com.