Oh, what a feeling... 💸

Oh, what a feeling... 💸

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On repeat, the nation has been dancing close to the debt ceiling (the max amount of money the federal government may borrow). Congress has increased the debt limit* 78 times since 1960. 

And time’s up again: As of early 2023, the U.S. hit the current debt ceiling, which has forced the government to take “extraordinary measures”* to continue fulfilling its obligations. But those will run out sometime this summer. If the U.S. defaults on its debt, rates would potentially increase on other types of debt, like mortgages and auto loans, to account for added risk. 

Consumer debt is also shimmying upwards, climbing 5% in February over the same period last year, according to the Fed’s report* released last week.

If you feel like you’re doing the hustle, lace up your shoes and kick consumer debt to the curb

— The Editors 

Fresh from inflation station: The latest reading of the core consumer price index,* showed inflation cooling slightly in March. The index rose 5% last month, and while that’s a slower increase than February’s 6%, analysts* are split on if this is enough for a pause in rate increases. 

A notch down for the 1%: Half of Earth's wealthiest residents are poorer than this time last year, according to Forbes’ annual billionaire list.* The world's billionaires have a collective net worth of $12.2 trillion, a drop of $500 billion.  

Failure to launch: Nearly 70% of parents with kids 18 or older say they’ve sacrificed their own finances* to help their children, including 43% who report draining their retirement funds to help their adult children. Here’s one finance writer’s take on helping your kids build wealth

Are we swiping *too* much? 

Opening a credit card goes hand in hand with one common financial lesson: “Pay your balance, on time, in full.” But now, everyone’s seemingly hitting our own version of a debt ceiling. 

At the consumer level, one person aptly dubbed this moment the “feral era,”* a season of gleeful spending following the frugality of the pandemic. Indeed, these past few years have shaped our relationship with money, particularly younger people whose early careers and account balances have frequently teetered between bounty and drought in the pandemic economy. 

Borrowing has been on the rise* for nearly two years, spiking year-over-year 9% in 2021 and almost 18% in 2022 — a record growth rate. 

Not all debt is created equal. Carrying high-interest consumer debt can ding your credit score and impede your financial goals. Meanwhile, taking out a loan for training or education can help create more opportunity, and a home mortgage can provide comfort and housing stability. For responsible borrowers, that has potential: borrowing now, paying off later. 

Buying into BNPL  

Apple joined the chorus of companies offering buy now, pay later (BNPL), a method of short-term financing that allows you to make purchases and pay over time. Apple Pay Later* allows customers to split payments of $50 to $1,000 into four installments. 

Over the past year, the amount of BNPL transactions has steadily increased,* up 39% year-over-year, according to anonymized data from Empower Personal Dashboard™ as of February 2023. And BNPL spend has more than doubled over the past year; in February of this year, borrowers who use the dashboard logged $6.4 million with BNPL vendors, up from $2.6 million in February 2022. 

Of every generation, Millennials and Gen Zers made the most* (63%) BNPL transactions. Though Millennials are currently the reigning spenders, Gen Z is catching up; Gen Z users’ annual transactions were up 41% year-over-year, while Millennials increased their transactions by 37%. 

BNPL isn’t inherently wrong. For the right borrower, it can help build credit to fund future, larger purchases if transactions are reported to credit bureaus. But given the convenience of online shopping paired with BNPL, it can be easy to spiral into consumer debt. Instead of leaning on financing apps, consider this method of budgeting, which buckets your funds into three categories to keep some of those “wants” in check. 

U.S. hiring slowed in March with wage gains in service roles 

The U.S. economy added 236,000 jobs in March,* a slowdown from the average monthly gain of 334,000 over the prior six months. In March, employment continued to trend up in leisure and hospitality, government, professional and business services, and health care. Most of the job growth occurred in restaurants, where employment rose by 50,000 last month. 

Fittingly, the biggest wage gains went to leisure and hospitality employees, whose average hourly earnings rose a total of 21.9%* since January 2021.  

Despite the solid jobs data, most workers are still losing out to rising inflation. Consumer prices rose almost 15%* between January 2021 and February 2023. 

Indeed, numerous factors are cutting into solid wages; one report found* 60% of U.S. Millennials earning over $100,000 a year report living paycheck to paycheck. A six-figure salary, once a symbol of the hard-earned American dream, may no longer mean you’re “rich.” 

*Empower Retirement, LLC and its affiliates are not affiliated with the author or responsible for the third-party content provided from links to external material.

As of April 13, 2023, EAG does hold shares of AAPL in advisory client accounts.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. No part of this blog, nor the links contained therein is a solicitation or offer to sell securities. Compensation for freelance contributions not to exceed $1,250. Third-party data is obtained from sources believed to be reliable; however, Empower cannot guarantee the accuracy, timeliness, completeness or fitness of this data for any particular purpose. Third-party links are provided solely as a convenience and do not imply an affiliation, endorsement or approval by Empower of the contents on such third-party websites. 

Certain sections of this blog may contain forward-looking statements that are based on our reasonable expectations, estimates, projections and assumptions. Past performance is not a guarantee of future return, nor is it indicative of future performance. Investing involves risk. The value of your investment will fluctuate and you may lose money. 

Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it authorizes use of by individuals who successfully complete CFP Board's initial and ongoing certification requirements. 

Advisory services are provided for a fee by Empower Advisory Group, LLC (“EAG”). EAG is a registered investment adviser with the Securities and Exchange Commission (“SEC”) and subsidiary of Empower Annuity Insurance Company of America. Registration does not imply a certain level of skill or training.