TIPP Insights: America’s financial stress epidemic

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By TIPPINSIGHTS EDITORIAL BOARD, TIPP Insights

The headline is no hyperbole. According to our latest poll, conducted in early May, the deviation of the Investor’s Business Daily/TIPP Financial Stress Index from its historical average is worse by a stunning 10% or more for 35 of the 36 demographic segments we track demonstrating the severity of the situation. That is, financial stress is a virus that affects both the rich and the poor and people of all ages.

Further, it has historical significance. The month of May’s reading of 69.3 is the second-highest since December 2008 (71.0), during the financial Tsunami. The only other worse reading was 69.8 at the start of the pandemic in April 2020.

The IBD/TIPPFinancial Stress Index is a one-of-a-kind metric evaluating financial stress.  In December 2007, we began using it to track financial stress. The index accurately indicates Americans’ financial stress about paying bills and making ends meet. Consumer spending drives two-thirds of the economy. When people are stressed, they are hesitant to spend money.

Financial stress can lead to insomnia, weight gain (or loss), depression, anxiety, relationship difficulties, social withdrawal, and other physical ailments such as headaches, gastrointestinal problems, diabetes, high blood pressure, and heart disease.

We computed the index from responses to the questions: thinking of your personal finances, compared to the past three months, do you feel more stressed these days, less stressed these days, or feel the same level of stress?

The index ranges from 0 to 100; the higher the number, the more the stress. A reading of 50.0 is the neutral point.

The Investor’s Business Daily/TIPP Financial Stress Index increased for the third consecutive month. The index rose by 1.4 points, or 2.1%, from 67.9 in April to 69.3 in May. The index has risen by 5.1 points, or 7.9 percent, in the three months since February.

Persistent inflation, stock market correction, job displacement due to vaccine mandates and the Great Resignation, and job insecurity exacerbate financial stress.

This month’s reading of 63.2 is above the index’s three-month moving average of 61.4, reflecting the underlying negative momentum.

The momentum is accelerating, squeezing Americans. May’s reading of 69.3 is greater than the 3-month average of 67.9. And the three-month average is greater than the six-month average of 66.5, which is greater than the 12-month average of 65.0.

The chart below shows that financial stress impacts all Americans irrespective of their party affiliation. Democrats (65.6) have the lowest stress. Republicans’ stress level is 8.8 points higher (74.4). Independents fall in between at 69.4, very close to the level for all respondents at 69.3.

The standard deviation of the index readings for the 26 months is very similar across party lines. It is 4.5 for Democrats, 4.3 for Republicans, and 3.9 for Independents.

By The Numbers

‌‌‌The table below shows the index’s historical averages, May readings, and differences across demographic groups.  Note that all groups but one have positive deviations of 10% or more from their historical averages, indicating elevated stress levels.

Inflation Concerns

As we have shown earlier, 88% are concerned about inflation. Inflation is a form of taxation.

According to the Consumer Price Index (CPI), inflation rose 0.3 percent in April, rising 8.3 percent between April 2021 and April 2022.

Compared to a year ago, Americans are paying 81% more for fuel oil, 44% more for gasoline, and 23% for natural gas. Food prices have increased by 9.4%, while experts say it may be closer to double digits.

As inflation persists, money’s purchasing power falls. Low-income households cannot absorb price increases, particularly for necessities such as food, energy, and shelter, because these consume a large portion of their income. Sharp inflation is likely to impact retirees as the dollar’s purchasing power declines.

Most respondents (51%) say their wages have not kept pace with inflation. Only one in six (18%) say that it has.

Price increases in energy, food, and groceries have caused a perceptual shift, causing consumers to cut back on their spending. Almost three-quarters (72%) of respondents said they cut back on household spending. Cutting expenses was seen among people of all ages and income levels.

Here are the ten demographic groups with the highest stress levels based on a three-month simple moving average.  Politics drives some of the financial stress. Conservatives and Republicans are worried about the Biden administration’s policies.

The chart below shows the twelve demographic groups with the least stress. The least stressed groups are Blacks, liberals, the 65+ age group, and Democrats.

As the country recovers from the pandemic, it faces an inflation monster. High financial stress poses increased health risks.

While addressing inflation, President Biden must also acknowledge the financial stress that Americans are experiencing and structure his narrative in a way that is sensitive to their feelings.

READ MORE FROM TIPP INSIGHTS

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