Emergency savings hit as families adjust their short-term finances
A woman pushes a shopping cart through the grocery aisle of Target in Annapolis, Maryland, on May 16, 2022, as Americans prepare for the shock of summer posters as inflation continues to grow.
Jim Watson | AFP | Getty Images
Emergency savings appears to be another victim of rising inflation.
About a third of adults contribute less to their emergency funds so they can cover their daily expenses, according to research from New York Life Insurance. The average reduction in monthly contributions for these emergency accounts is $243, with millennials making the biggest reduction: $289.
“While it is troubling that the rising costs of everyday goods and regular expenses may reduce a necessary financial cushion, this environment means that families are making calculated decisions about how to adjust their financial strategy in the way that makes the most sense to them,” said Dylan Huang, Head of Retirement Solutions. and Wealth Management in New York Life.
Inflation is 8.3% year-over-year, according to the latest measurement from the US Bureau of Labor Statistics. Although slightly down from March’s peak of 8.5%, it is still the fastest annual pace in nearly four decades and well above the Fed’s 2% target.
The Fed has already raised its key interest rate twice this year in an effort to slow inflation and is expected to continue making gains this year. The idea is that as the cost of borrowing rises, consumers will rein in their spending and the resulting lower demand for goods and services will slow price increases.
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In addition to lower emergency savings contributions, inflation also causes families to delay some financial goals: deferring vacations (33%), paying off credit card debt (22%), buying a car (22%) and buying a home (16%) according to New York Life research. .
At the same time, long-term savings are less affected: 72% of those surveyed said they still expect to retire at their desired age.
“Among those who haven’t retired yet, we see this group making the necessary adjustments to their financial strategies while not letting short-term worries spoil their retirement plans,” Huang said.