Home Money 6 ways 2020 has changed how people manage and spend their money

6 ways 2020 has changed how people manage and spend their money

by Ryan

  • The COVID-19 pandemic created a financial crisis in 2020 that caused many people to take a hard look at their finances and find ways to cut back.
  • Now, more Americans are prioritizing paying their bills and reducing discretionary spending.
  • Household spending lowered sharply in high-income groups, which in turn caused businesses in high-rent neighborhoods to have to lay off more low-income workers.
  • At the same time, more Americans are shopping consciously and are making an effort to support local and minority owned businesses.
  • Visit Business Insider’s homepage for more stories.

Unprecedented events have affected how we save, spend, invest, and prioritize our finances. Here’s how our money habits are changing.

What a year 2020 has been so far. To recap:

  • We got filing and payment extensions on our taxes and were offered deferrals on our student loans and mortgages. 
  • We received a “Get Well Soon” card with a stimulus payment from Uncle Sam to help tide us over, at least for a few months.
  • We felt the full force of the stock market’s mood swings for the first time in more than a decade, providing a terrifying lesson in what volatility looks like in real life.
  • We were handed the keys to our 401(k)s and IRAs and allowed to withdraw more money, penalty-free, and pay it back tax- and interest-free. 
  • We got a price break on our car insurance premiums by driving less. Some companies went so far as to send car insurance refunds to customers.
  • More people than ever became acquainted with the unemployment system. And due to the dire state of affairs, the government extended benefits and temporarily padded checks with an extra $600 a week.

All that, and there are still three more months of 2020 to come. 

Read more: 6 side hustles you can start online to make extra money from home, according to 2 freelancers who’ve made up to $15,000 a month

6 ways 2020 has left its mark

The fallout from the COVID-19 financial crisis has affected people in different ways and to different degrees. But it has impacted all of our money habits in some way. Here are the ways the major economic events of 2020 have changed the way we’re handling our financial affairs:

1. Our financial priorities have changed: With the shaky state of employment, Americans have been prioritizing immediate financial matters, specifically getting caught up or staying current on bills. According to a recent Bankrate survey, 46% of households say this is their top priority right now, versus 38% who listed it as priority No. 1 last year.

2. We’re getting more organized: The First National Bank of Omaha’s (FNBO) Pandemic Financial Impact Survey found that 72% of Americans say COVID-19 has caused them to become more organized when it comes to their finances than they were pre-pandemic. It’s natural we’d pay more attention to the details of our finances. Economic events affect everything from our employment stability to the interest rates we pay and receive on loans and savings. Paying closer attention is one of those money habits that is worth continuing even post-pandemic.

3. We’re spending less: The latest data from the Bureau of Economic Analysis shows that consumer spending has dropped from 8.7% in May to just 1% in August. But not all households have cut spending at the same rate. A recent paper out of Harvard showed that high-income households reduced their spending more sharply than low-income households, many of which have less discretionary income. The fallout has been harsh: Because of spending reductions, businesses in the most affluent neighborhoods have lost more than 70% of their revenue. That has led to low-wage workers in high-rent ZIP codes losing their jobs at a higher rate than those in lowest-rent ZIP codes (70% versus 30%).

4. We’re saving more money… a lot more: The personal savings rate shot up to a record 32.2% in April. (The previous savings high was 17.3% back in May of 1975.) During the past decade our savings rate — the percentage of people’s income left each month after taxes and spending are backed out — has hovered in the 6% to 8% range. Sadly, at the same time the rates on high-yield savings accounts lost their luster and are now hovering in the 1% range. Still, one of the best money habits is to get used to living on less by saving more.

5. We’re keeping calm and carrying on in our 401(k)s: If you’ve been avoiding eye contact with your 401(k), you’re not alone. It’s been hard to keep up with the constant drama. That said, most investors have stuck with a long-term investing mindset. The Investment Company Institute (which looks at data from more than 30 million participant accounts) reports that just 2% of Americans stopped contributing to their defined contribution retirement plan during the first half of the year, which is close to previous years’ average. Only 2.8% withdrew money (versus 2.5% in 2019) and 1.1% took a hardship withdrawal (the same as last year). Nor have we shied away from our previously set investing strategy: The percentage of those who changed their asset allocation was just slightly higher than in previous years.

6. We’re more conscious about where we shop: The pandemic has dealt a brutal blow to small businesses. As a result, consumers have become more aware of where they spend their retail dollars. Since May, shopping local has become a pointed preference according to the FNBO survey: 67% of respondents say that they’ve made an effort to shop at locally-owned establishments, and 38% say they have consciously purchased from a minority-owned business. 

Source link


Related Articles