Emergency savings hit as households adjust short-term finances

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It seems that emergency savings are another victim of high inflation.

According to a study by the New York Life Insurance Company, about one-third of adults contribute less to their emergency funds so they can cover day-to-day expenses. The average reduction in monthly contributions to these emergency accounts is $243, with millennials making the biggest reduction: $289.

“While it is concerning that rising costs of daily consumer goods and regular expenses may deflate a necessary financial cushion, this environment means that households are making calculated decisions about how to adjust their financial strategy from way that makes the most sense to them,” said Dylan Huang, chief retirement and wealth management solutions for New York Life.

Inflation stands at 8.3% year over year, according to the most recent measure from the US Bureau of Labor Statistics. While that’s down slightly from March’s peak of 8.5%, it’s still the fastest annual pace in about four decades and well above the Federal Reserve’s 2% target. .

The Fed has already raised its key rate twice this year in an effort to slow the pace of inflation and is expected to continue its hikes this year. The idea is that as the cost of borrowing rises, consumers will rein in spending, and the resulting decline in demand for goods and services will slow the rise in prices.

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Beyond cutting emergency savings contributions, inflation is also pushing households to postpone certain financial goals: postponing vacations (33%), paying off credit card debt (22%), buying a car (22%) and buy a house (16%). , according to New York Life research.

At the same time, long-term savings are less impacted: 72% of respondents said they still expect to retire at the desired age.

“Among those not yet retired, we see this group making necessary adjustments to their financial strategies while not allowing short-term anxiety to derail their retirement plans,” Huang said.

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