The average U.S. household stayed out of financial distress in the year’s first quarter, but only barely. Consumers’ strained household budgets curbed financial progress, according to the most recent findings from the CredAbility Consumer Distress Index. The Index monitors the financial condition of the average…
The average U.S. household stayed out of financial distress in the year’s first quarter, but only barely. Consumers’ strained household budgets curbed financial progress, according to the most recent findings from the CredAbility Consumer Distress Index.
The Index monitors the financial condition of the average U.S. household by measuring employment, housing, credit, how families manage household budgets, and net worth. In the first quarter, U.S. households scored 70.7 on the Index’s 100-point scale, where a score below 70 marks a state of financial distress.
Gains in employment, housing, credit, and net worth were enough to keep the average household afloat, but plummeting household savings and a sinking consumer sentiment index restrained budgets more than three years into the economic recovery.
While the most recent score was down 1.1 point from the last quarter of 2012, the index has moved up and down the past four quarters, resulting in a net gain of less than one point.
Credit is under control
“The average household is positioned to improve financially,” says Scott Scredon, director of public relations at CredAbility, “and that’s because employment is rising, housing values are rising, and mortgage delinquency rates are falling—and at the same time, people have their credit under control.”
The Index’s credit category, which Scredon calls the “shining star” in terms of consumer behavior over the last few years, topped 90 for the first time in 24 years.
“Credit card delinquencies are very low compared to historic levels, and bankruptcies are falling,” Scredon says. “People have done a good job of keeping their spending under control and paying back any credit they borrow.”
Saving money is a challenge
Despite keeping their spending under control, consumers seem to be having trouble saving money. The net worth category, measured by home value, stock market holdings, and personal savings, is well below 70, but it has reached its highest point since the financial crisis hit, with a five-point gain in more than four years.
However, the three indicators that make up the household budget category—the amount of money consumers save after they pay their bills, the amount of money consumers have available for emergency savings, and the consumer sentiment index—dropped rather significantly from the fourth quarter of 2012 to the first quarter of 2013.
The Social Security tax hike in January could have impacted household savings by reducing disposable income and the amount of money available to save, says Scredon.
He adds, “We are hoping that after the end of each month, people will save about 7 percent of their household income after they have paid all of their bills. Unfortunately, the savings after the end of the first quarter were close to 2 percent.”
Budgets are unstable
Of the five categories that make up the Index, the household budget category is the most volatile, according to Scredon, as it is affected by factors like gas and food prices.
The household budget category is also counter-cyclical. When times are tough, consumers tend to tighten their purse strings, and when the economy improves, consumers tend to get looser with their spending.
As consumers gear up for the summer, Scredon recommends carefully managing travel plans, particularly while gas prices are expected to rise, and being mindful of discretionary spending.
Joslin Woods is a researcher, writer, and Web producer at Think Glink Publishing, with a background in print and digital media. Previously, Joslin worked as a news reporter for the international news agency Agence France-Presse and as a freelance reporter for the Sun-Times News Group. She is a graduate of Vanderbilt University and Northwestern University, where she received a master’s degree in journalism.
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