Data & Research July 22, 2011

Nearly Two-Thirds of Americans Feel Double Dip Recession

The First Command Financial Behaviors Index report illustrates that the continuing economic turmoil is becoming a way of life for middle-class consumers. 
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First Command laid the blame on the downbeat economy for its Financial Behaviors Index to fall by six points during the second quarter, reflecting steady erosion in the financial intentions and attitudes of middle-class Americans.

After hitting a two-year high of 101 in December 2010, the Index has been declining over the first half of 2011—with a substantial drop from 90 in April to 86 in May. This four-point drop was the product of a substantial decline in the behaviors sub-index, which was driven largely by a decrease of nearly $350 in the average amount Americans put into retirement accounts (from $940 to April to $598 in May). The attitudes sub-index has also been on the decline since the beginning of the year, reaching a two-year low of 82 in April.

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“Dealing with a downbeat economy is becoming a way of life for middle-class Americans,” said Scott Spiker, CEO of First Command Financial Services, Inc. “June survey results illustrate that nearly two-thirds of consumers believe that the U.S. is currently experiencing a double dip recession, a stark increase from the 50 percent who shared this same sentiment last year. They are working hard to live more frugally and keep their household spending in check. But they are still struggling with savings and debt.”

Consumers are using loans and their savings as a way to pay for amenities during the continuing economic turmoil, the report says. Just under half of consumers report taking out at least one loan in the last year, and one-third report taking out at least one loan in the last six months.

Furthermore, results indicate that 92% of Americans have at least some sort of debt built up—proven further by the record low savings-to-debt ratio (defined as the amount of total savings compared to the amount of total debt a family carries). In May, only 27% of families reported having a positive savings-to-debt ratio, the lowest percentage in the history of the Index.

“The decline in the savings-to-debt ratio is a matter of great concern,” Spiker said. “Our research has consistently demonstrated that the savings-to-debt ratio is perhaps the most significant contributor to feelings of financial optimism. As one’s savings-to-debt ratio increases—meaning more savings, less debt—feelings of financial security increase, and feelings of being financially stretched decrease. A positive savings-to-debt ratio makes a person feel better about the present and more optimistic about the future.”

Notably, the growing belief that the country is in a double dip recession does not appear to be intensifying consumer concerns about the economy. In fact, the second quarter ended with only 49% of respondents reporting being concerned with the state of the economy—the lowest level since the launch of the Index in early 2008. And the Index logged a slight increase from May to June.

Compiled by Sentient Decision Science, Inc., the First Command Financial Behaviors Index assesses trends among the American public’s financial behaviors, attitudes and intentions through a monthly survey of approximately 1,000 U.S. consumers aged 25 to 70 with annual household incomes of at least $50,000. Results are reported quarterly.

Data & Research July 22, 2011

Most Americans Missing a “Plan B”

A recent study from State Farm found that fewer than fifty percent of Americans have a financial back-up plan in place.
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In State Farm’s “Financial Plan B” survey, 81% of respondents agreed that having an alternative financial plan is very important, but only 45% claim to have planned for a future crisis. Additionally, many Americans have not prepared for short-term financial difficulties, and even more expressed doubts about their retirement plans. 

Key findings of the survey include:  

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  • 35% of Americans say they have funds on hand to meet financial needs for up to three months, and 15% do not have funds to meet commitments beyond a single month
  • 54% reported would accept a lower-paying job than the one they currently hold if they were out of work for six months or fewer
  • 61% admitted they would take money from a 401(k) or other employer-sponsored retirement savings vehicle as part of their Plan B, 34% would downsize their home and 22% would move in with family
  • Almost 25% of future retirees think they will be able to retire at age 60, but the same number doubt they will ever be able to retire
  • More than 60% of Americans say they will not be able to retire without Social Security and/or Medicare as they exist today

“With the economic downturn and concerns about continued slow growth, it’s critically important that people take a clear-eyed look at their financial situation and develop realistic options they can have in place should unexpected financial difficulties pop up,” said Joe Monk, senior vice president and chief administrative officer, State Farm Life Insurance Company.

Given these uncertainties, State Farm recommends the following tips to help prepare against the damaging effects unexpected life events can have on savings and retirement plans:  

  • Start the conversation with loved ones 
  • Work with someone you trust 
  • Put your plan in writing 

Harris Interactive conducted the telephone survey for State Farm between May 6 and May 16, 2011. A nationally representative sample of 2,017 U.S. adults aged 18 and older were asked to consider their financial readiness in the face of a major life crisis such as loss of a job, a divorce, the unexpected death of a spouse or partner, or a catastrophic illness that leaves someone unable to earn an income. 

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