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Why It May Be Extra Hard for You to Save Money This Year

Woman struggling to save money
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If you made a New Year’s resolution to accumulate your savings account in 2022, you’re not alone. In a recent Fidelity survey, 43% of people considering making a financial decision said saving more money was one of their goals.

Americans’ savings have skyrocketed over the past two years. The personal savings rate — the percentage of disposable income Americans save each month — peaked at 33.8% in April 2020 because a lot of the things we used to spend money on, like restaurants, entertainment, shopping, and vacations, were unavailable during the early days of the pandemic.

Savings rates fell slightly as the economy reopened, but remained very high by historical standards for several months.

As of November, that number is down to 6.9%, the lowest level since December 2017. This is because the landscape for savers is changing rapidly, and there’s a good chance that saving money will be even more difficult in 2022.

Here are some of the reasons why it’s hard to save this year.

high inflation

Consumer prices in the United States are rising at record rates thanks to the massive rise in demand for goods combined with the ongoing global supply chain crisis, and the situation has been exacerbated by the persistent shortage of labor. In November, prices were 6.8% higher than the same period a year earlier, with inflation in some categories, such as meat and gasoline, much higher than that.

The Federal Reserve is expected to roll back its support for the economy in the coming months to help prices stabilize again (more on that later), but the process will be slow.

In the meantime, be prepared to pay more in 2022 for daily essentials like groceries, gas, clothes, and even home heating costs and fast food like Oreos and Sour Patch Kids. And if you have to make a big purchase, like buying a car or a house, be prepared for especially high prices.

No more stimulus checks and relief money

Over the past two years, Congress has authorized three rounds of federal stimulus payments to help Americans weather the pandemic. Experts say the windfall from these payments – up to a maximum of $1,200, $600 and $1,400 per person – reduced debt burdens, boosted savings accounts and even helped lift families out of poverty.

As part of the US bailout in March (the same law that authorized the third stimulus check), Congress authorized a significant, albeit temporary, expansion of the Children’s Tax Credit (CTC) for 2021.

The expansion increased the maximum credit value from $2,000 to $3,600 per child and allowed eligible parents to receive half of their credit in six monthly instalments. The last child tax credit advance for 2021 hit parents’ bank accounts in December.

A survey conducted by the University of Washington’s Institute for Social Policy last summer found that nearly three-quarters of parents would be willing to receive credit expected to be used to bolster their emergency savings.

The CTC won’t completely disappear in 2022, but it’s now expected to return to $2,000, and parents won’t receive the money in monthly installments up front anymore.

The Biden administration and some congressional leaders have argued that the extended credit payments should continue through 2022, but no action has been taken. And while nothing is impossible, a fourth stimulus check is unlikely.

As a result, many Americans likely won’t see these additional federal relief payments again in 2022, although eligible parents will still see the other half of the expanded CTC’s credit on their tax returns this year.

Student loan payments likely to resume

During the pandemic, the federal government has frozen student loan payments and accrued interest for federal borrowers. This freeze has been extended several times, most recently until May 1, 2022.

There is no doubt that the suspension of payments has been a boon to millions of borrowers. A survey conducted by the Pew Charitable Trusts last summer found that 59% of borrowers who stopped making payments during the pause period used the money mostly for basic expenses like food and rent. Interestingly, only 9% of respondents said the extra money went to savings.

Despite pressure from progressives and advocates for another extension of the student loan freeze or permanent forgiveness, it now appears that borrowers should plan to start paying off their loans again in the spring.

Low interest rates for savers

In March 2020, the Federal Reserve lowered the benchmark interest rate to nearly zero in order to keep markets thriving and prevent an economic meltdown. In the months that followed, banks across the country lowered their rates to stay competitive.

While interest rate cuts at banks are on par during downturns, it also means that your money splashed into savings accounts earns much less than it did during booms.

The sting of sharp interest rate cuts has been particularly painful for customers at online banks like Marcus, Ally and Axos, which have lured consumers with the promise of high-yield savings accounts that bring in interest rates of 2% and above, compared to fractions of a percentage. in conventional banks. Now, rates for high-yield savings accounts range from 0.3% to 0.5%.

The Federal Reserve is expected to start raising interest rates again this year, but it could take years for interest rates at consumer banks to rise again.

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