Why do clients who seem to be doing well have such a hard time committing to long-term retirement savings plans or other long-term plans?
One reason may be that recent inflation trends have put U.S. consumer financial resilience on an extreme rollercoaster. The American Council of Life Insurers has published statistics painting that picture in a report on the status of a new financial resilience index.
The current index for middle-income households stands at 31.8 on a scale of 100, up from 14.2 a year earlier. But the index has swung from a peak of over 50 in 2021, when COVID-19 pandemic relief programs filled consumers' bank accounts with cash, down to about negative 40 in early 2023, when inflation hit hard, before starting to climb higher.
The financial resilience index, which goes back to 2000, shows consumers' ability to handle financial problems gyrating much more dramatically and more quickly than it has at any other point since its inception.
What it means: Andrew Melnyk, the ACLI's chief economist, said the index shows that resource growth has been a source of household strength. "Middle-class wages remain well above historical averages," he said.
But the index also shows that middle-income households face much more uncertainty than usual about how much their wages can buy and, presumably, how much they can allocate to life insurance, annuities or 401(k) plans.
The ACLI Financial Resilience Index: The ACLI, a group for life insurers, is basing the index on a combination of government asset data, government consumer data and a University of Michigan consumer survey.
The ACLI is using some streams of data to create a "resource resilience" tracking index.
The resource resilience index includes Federal Reserve bank measures of wage growth, access to consumer credit, debt delinquency expectations and retirement asset ownership, along with University of Michigan data on consumers' views about their readiness for retirement.
The ACLI is using Consumer Price Index data from the U.S. Bureau of Labor Statistics to create a cost resilience index, which reflects consumers' ability to pay for everyday essentials, such as groceries and electricity; care expenses, such as health care, child care and education bills; and modest luxuries, such as restaurant meals and airfares.
The ACLI is creating the financial resilience index by adding 60% of the value of the resource resilience index to 40% of the value of the cost resilience index.
The ACLI is supplementing the resilience index with a "sense of stability" survey, in which an outside polling firm asks consumers in households earning $50,000 to $150,000 per year how confident they are that their households could pay an unexpected $5,000 bill.
The polling firm is also asking survey participants about how many months of living expenses each consumer's household has in easily accessible savings, such as cash, a checking account or a basic savings account.
The ACLI survey results reflect answers from 1,057 U.S. survey participants ages 18 and older with household income in the targeted range.
Household liquidity: Only 26% of the consumers surveyed said they have enough easily accessible cash to pay living expenses for 10 or more months, and 20% said they had too little access to cash to cover one month of living expenses.
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