Americans eye financial security despite stagnant income

Financial security among Americans is another indicator of a stronger economy, but the degree of relief and its sustainability is uncertain. Bankrate’s Financial Security Index rose again in October for its third consecutive month with a reading of 101.

The gain was linked to an improvement in job security, comfort level with debt, net worth and overall financial situation. That said, the survey continues to show concern about deteriorating savings over the past 12 months and stagnant incomes for many U.S. households.

The recent results indicate 66% of respondents said they have reasons to limit their monthly spending. Half of the respondents who said they limit spending, do so because their income hasn’t changed. One in three respondents believe they need to save more money and 16% said they are still worried about the economy.

Greg McBride, chief economist with Bankrate, told The City Wire, that one of the more troubling aspects with this year’s results is that 41% said their top financial priority is staying caught-up or getting caught-up on their bills. 

“This is up from 36% last year and 32% in 2012 which indicates to me that more Americans are having a tougher time bridging the gap between stagnant wages and higher expenses,” McBride said.

GAS PRICE RELIEF
The Census Bureau recently reported that median U.S. household income has been unchanged from 2012, and when adjusting for inflation it’s 8% lower than at the peak in 2007. Median income hasn’t shown a statistically significant increase since the recession ended in 2009.

“The only real raise in income that many families have seen in quite some time is the relief they are feeling from lower gas prices. The average two-car family can see a savings up to $50 per month. This is money that will go a lot further in lower income households and those living paycheck to paycheck,” McBride said.

When asked about job security, one in four respondents said they are more secure this year compared to a year ago. Two-thirds feel the same as a year ago and 13% have reasons to feel less secure about their jobs. Looking at specific demographics, the survey found Millennials are nearly twice as likely to feel secure about their jobs than workers approaching retirement between the ages of 50 and 64.

The survey results also revealed that one-third of respondents are less comfortable about their savings compared to the same period in 2013. Nearly half (49%) said they have saved about the same money as last year and that’s okay with them. The survey also revealed that full-time workers were nearly twice as likely to be comfortable with their savings level than those working part-time jobs.

‘NONEXISTENT’ WEALTH RECOVERY
The U.S. Bureau of Economic Analysis keeps track of personal consumer savings which have risen from 4.5% to 5.6% from October 2013 to October 2014. The savings rates have been above 5.3% since May. 

McBride said he doesn’t expect most families to save the estimated $50 per month realized from lower gas prices. 

“This isn’t a check that comes in the mail, it is gained incrementally each time the family fills up the tank. I suspect most of the savings will be spent on food or insurance costs that continue to rise,” he added.

Slightly more than half (59%) of those surveyed said their net worth is on par with a year ago. About a one-quarter noted their net worths — total assets minus debts — is higher today than last year. About 15% said their net worths have dropped year-over-year.

McBride said only those households with real assets — real estate and stocks/bonds — have seen their net worth’s rise as real estate values rebound and the financial markets set new record highs. 

“For much of the country this wealth recovery has been nonexistent,” he said.

OVERALL FINANCIAL PICTURE
The final question in the survey asked respondents to compare their overall financial situation to a year ago. Half of them noted their overall finances are the same as last year. The other half were split fairly evenly between “better” or “worse”. 

Boomers approaching retirement made up the majority of those who feel their situation is worse year-over-year. Millennials who are college graduates had the brightest financial outlook in the survey. Unemployed respondents made up 17% of the group who said their financial situation is worse than last year.

The Financial Security Index had a reading of 97.5 in October 2013, which was the low mark for the past 13-month period, according to Bankrate. The index, which is a measure of consumer’s sentiment regarding their own household finances peaked in January at 102.5, only to dip sharply in February to a reading of 99 and then rebound to 101.75 in March. Through the spring, sentiment readings slid to 98 but bounced back in June to 102. Readings were flat at the 100 mark in July and August but started to trend slightly higher in September, moving up to 101 in October.

Economists expect sentiment to move a little higher in November and December the amid lower gasoline prices. They expect to see several tenths added to the fourth quarter GDP growth since fuel prices began falling last month.

"Every penny on seasonally adjusted gasoline prices should be worth about $1 billion," economist Stephen Stanley said during a recent interview with CNBC. "Over the course of the year that's probably an extra three- or four-tenths on GDP."

Stanley is the chief economist with Amherst Pierpont Securities in New York.

Economists agree for the fuel savings to carry a real punch, the drop in gasoline prices will have to be prolonged.