The Pandemic’s Lingering Impact on Financial Security

A Northwestern Mutual study suggests that, while many people’s financial habits have improved, the pandemic has still disrupted the way people manage their finances.

By DJ Shaw

A recent study published by Northwestern Mutual explores the attitudes and behaviors U.S. adults have toward money, financial decisions and the broader issues affecting their long-term financial security.

Today’s investors and savers continue to grapple with the pandemic, inflation and economic uncertainty. As a result, many adults have adapted in their financial lives by improving their financial habits, accounting for emergencies and becoming more confident in themselves.

Findings from the 2022 Planning & Progress Study show that despite these improvements, financial discipline is not at the level it was last year, and personal savings are starting to shrink. Over 60% of respondents said the pandemic has been highly disruptive to the way they manage their finances. Among them, 48% said they have been able to adapt, while 13% said they have not.

More than 4 in 10 (43%) U.S. adults said they made up for financial ground lost during the first year of the pandemic, compared with 30% who said they haven’t and 27% who said they didn’t lose any ground in 2020, according to the study. Among the 43% who have made up lost ground, 10% said they made up all of it and more, and they are now ahead of where they expected to be financially. Some 12% said they made it up entirely and are fully back on track financially, and 21% said they made up some of the ground lost in 2020 but are not fully back on track yet.

The study found that 60% of adults said they’ve been able to build up their personal savings over the last two years, and 69% of those said they plan to maintain their new saving rate going forward. While more people are saving, year-over-year numbers show the overall amount of savings dropped 15%. The average amount of personal savings in 2022 was $62,000, compared with $73,000 in 2021.

Most adults (73%) said they have adopted better financial habits as a result of the pandemic, with an equal amount who said they expect to maintain those good habits going forward, the study says. This is below the 95% who said the same in 2021.

The study lists the top five behaviors adopted: reducing living costs/spending (35% in 2022 versus 45% in 2021), paying down debt (22% versus 34%), increasing investing (19% versus 33%), increasing the use of tech to manage finances (19% versus 28%) and regularly revisiting financial plans (17% versus 29%).

The study found that people who work with a financial adviser and those who self-identify as disciplined financial planners not only report lower levels of financial anxiety in their lives, but also higher levels of happiness and better sleep.

Among respondents, 54% reported feeling somewhat or very anxious about their finances. That number drops to 46% for people who work with a financial adviser and 47% for those who self-identify as disciplined planners, the study says. Among Millennials and Generation Z, 66% said they feel somewhat or very anxious about their finances.

The study also found a strong generational difference when it comes to how people view the impact of their daily financial decisions. A majority of the youngest group of U.S. adults believe that small daily purchases will have an effect on their long-term financial security.

When asked if a small purchase like a daily cup of coffee would have an impact on their long-term financial security, 44% of adults agreed, including 53% of Gen Z, 52% of Millennials, 46% of Gen X and 32% of Baby Boomers, the study found.

More than 6 in 10 Americans (62%) said their financial planning needs improvement, yet only 35% reported seeking the help of a financial adviser, the study says. Nearly one-fifth (18%) of adults said they didn’t have an adviser before the pandemic but now either have started working with someone or plan to moving forward.

Three-quarters of Gen Z and Millennials said their financial planning needs improvement, the study says. They are the most likely to say they didn’t work with an adviser before the pandemic but have since started doing so or plan to moving forward.

The study also found differences in saving behavior among those who work with an adviser versus those who go it alone, with 80% of those who got professional help reporting that they were able to build their savings during the pandemic. Among those who didn’t receive help, 49% said they were able to save more.