Despite a sold economy, a lot of people aren’t spending much

Two thirds of Americans say they’ve cut back on their spending because they’re concerned about the economy, while nearly 50 percent said they’ve put some “life plans” on hold for the same reason, a major U.S. financial institution has reported.

Thirty-five percent say they have taken money out of their savings or investments to make ends meet, but a little more than 60 percent say that after they pay their bills they have very little left to spend on extras, according the inaugural Wells Fargo Money Study.

The data, released Feb. 27, was collected between Sept. 5 and Oct. 3. Three thousand four hundred and three adults and 203 teens, age 14 to 17, particpated.

Those surveyed were divided into groups, and data was broken down by age, gender, race, ethnicity, income and education. The goal was to reach an accurate assessment of the population’s view of money based on estimates from the U.S. Census Bureau.

Despite a relatively strong economy when the study was conducted – decent job growth, declining inflation, and no recession – most of those surveyed were anxious about their finances.

The data found that most U.S. residents, regardless of their income and background are uncertain about their finances and are worried about their economic future,” said Michael Liersch, Well Fargo’s head of advice and planning for wealth.

“The study is full of great insights that will help inform us of consumer behavior as it relates to money,” Liersch said in an email interview. “It provides us with the opportunity to help our customers get their finances on track. Responders are interested in learning new ways to manage their money.”

But a lot of people are already managing their money well, if the survey’s results are to be believed.

Fifty-eight percent of respondents said they have enough money to live within their means and that they don’t have to worry about making ends meet. However, only 40 percent say they believe they’re in “good or great” financial shape, and 23 percent believe their financial position is poor.

In what might be the report’s most ominous findings, 44 percent said they have more debt than they’re comfortable with, and 31 percent admit that they spend more money than they can afford to spend in a typical month.

One of the study’s biggest takeaway is that 84 percent of the respondents said they are trying to be more “thoughtful” with their money.

Ironically, the fact that many Americans have seen their incomes and savings rise during the past several years might be part of the reason people are being cautious with their finances.

“As wealth and income increase, it can be difficult to say “no,” to kids, family members or the community when you are asked for money.” Liersch said “That may cause a variety of behaviors, including isolating oneself so you don’t have to say “no,” which may lower life satisfaction.”

Liersch cited a 2018 study by psychologists Andrew T. Webb of Purdue University and Ed Diener of the University of Virginia,  which found that there’s a point where money stops making people happy.

In some instances it can diminish happiness.

The researchers determined that in North America, an annual income of $105,000 was the the point at which that reaction was most likely to be triggered.

Parents spending on their children is a good example of what that study was trying to show, according to Liersch.

“It’s easier to say “no” to a toy, for example, under certain levels of annual income and wealth because you literally can’t afford it,” Liersch wrote. “But at some point, as income and wealth increase, it becomes difficult to say no, because it’s more of a value judgment than a question of affordability, which can lead to disruption in families.”

All of those factors combined could be part of the reason why some people have cut back on their spending, Liersch said.

But that behavior can also be attributed to a shift in the economy since the end of the pandemic, according to one local economist.

“There was a huge amount of free stimulus money pumped into the economy because of the pandemic, but that has pretty much gone away,” said Jay Prag, professor of economics at the Drucker School of Management at Claremont Graduate University. “That spigot has been turned off. People got used to having things that they can no longer afford, and that’s where the inflation came from.”

Prag acknowledged that the national job market is strong: 3.9 percent unemployment in February, according to the U.S. Bureau of Labor Statistics.  But a strong job market doesn’t necessarily mean people will spend money.

“People are worried about layoffs, or they’re worried about losing hours on their job,” Prag said. “High interest rates are still putting a lot of pressure on the U.S. economy, and inflation is still an issue. To cite one example, restaurants are closing because they can’t raise their prices enough to stay in business.

“Inflation is half of what it was, but twice what it should be.”

One part of the study – in which people admitted to having been dishonest in the past about several financial issues, including how much they have saved – demonstrates the uncertainty that currently surrounds the U.S. economy, according to Prag.

“I don’t think people are being dishonest on purpose. They really don’t know how much they’re worth, or how much their house is worth.”