"A Reminder To Be Aware of Financial Stumbling Blocks" by Julie Jason

Originally published: Aug. 14, 2022 (distributed by Andrews McMeel Syndication)

National Financial Awareness Day is Aug. 14, 2022. While the origins of the day are not clear (tinyurl.com/5fzxx5xz), its general goal is to encourage good financial practices.

     Yet awareness means not only creating good financial habits, but also seeing potential problem spots -- ideally, in advance of when they could cause financial harm.

     One growing problem is debt.

     The Federal Reserve Bank of New York's Center for Microeconomic Data recently issued its Quarterly Report on Household Debt and Credit (tinyurl.com/55p858st), which was headlined by total household debt surpassing $16 trillion during the second quarter of 2022. Overall, debt balances are now $2 trillion higher than at the end of 2019, before the COVID-19 pandemic took hold. 

     While mortgage debt ($11.39 trillion at the end of June) made up a large chunk of the total, credit card balances increased $46 billion from the first quarter to $890 billion. The 13% year-over-year increase was the largest in 20 years.

     "The second quarter of 2022 showed robust increases in mortgage, auto loan and credit card balances, driven in part by rising prices," said Joelle Scally, administrator of the Center for Microeconomic Data. 

     How are individual households affected? A recently released study by T. Rowe Price (tinyurl.com/yckhxrb3), a global investment management firm, found that financial stress is a predictor of financial wellness. As the study noted, "It probably comes as no surprise that financial wellness and financial stress are two sides of the same coin." 

     The research, which combines information from T. Rowe Price's annual Retirement Savings and Spending study and its Retirement Behavior Index, found that debt, budgeting and savings were the three most common drivers of financial stress. Fifty-eight percent of those who reported moderate to high financial stress had an amount of debt between $10,000 and $50,000, while 72% of those in the moderate to high stress category had a student loan. 

     If you need help with debt and budgeting, the Financial Industry Regulatory Authority, which oversees the U.S. broker-dealer industry, has webpages on spending and managing debt as part of its Personal Finance section (tinyurl.com/2ayx5f74). Consumer.gov also offers resources on managing your money and credit, loans and debt (tinyurl.com/2tb7uwyz). The Humble Dollar website, whose goal is "to tell you everything you need to know about money," has a Two-Minute Checkup section (tinyurl.com/ms7e5ekp) that can provide insight on your financial situation.

     Another issue to be aware of is the growth in health care costs -- especially when it concerns retirees and those soon to be retired.

     A research brief (tinyurl.com/yesh2dnw) released this month by the Center for Retirement Research at Boston College (CRR) examined the out-of-pocket costs for health care for retirees, especially in the wake of a 14.5% increase for 2022 in the premium for Medicare Part B (which covers medically necessary services and preventive services), something I touched upon in a recent column about inflation. (If you would like a copy of that column, please let me know at readers@juliejason.com.)

     The CRR brief used the 2018 Health and Retirement Study to help determine the share of Social Security benefits and overall income available after medical-related expenses, including premiums for Medicare Parts B and D, Medicare Advantage and supplemental plans.

     The result? For the median retiree, only 75% of Social Security benefits and 88% of total income were "available for non-medical spending." Because a considerable portion of income is going to medical costs, retirees' finances "were more precarious than Social Security benefit levels alone might suggest," adding that "it is understandable why many retirees likely feel that making ends meet is difficult."

     Concerns such as these reemphasize the need to be aware, as best you can, of the roadblocks that exist on your path to sustained financial success, and then to plan as best you can to manage those obstacles. In other words, be aware and prepare.