It appears emergency savings are another casualty of high inflation.
About one-third of adults are contributing less to their emergency funds so that they’re able to cover their everyday expenses, according to research from New York Life Insurance Company. The average reduction in monthly contributions to those emergency accounts is $243, with millennials making the biggest cut: $289.
“While it is concerning that the increased costs of everyday goods and regular expenses may deflate a necessary financial cushion, this environment means households are making calculated decisions about how to adjust their financial strategy in the way that makes the most sense for them,” said Dylan Huang, head of Retirement & Wealth Management Solutions for New York Life.
Inflation is running at 8.3% year-over-year, according to the most recent measurement from the U.S. Bureau of Labor Statistics. Although that’s down slightly from the March peak of 8.5%, it is still the fastest annual pace in about four decades and far above the Federal Reserve’s target of 2%.
The Fed already has raised a key interest rate two times this year in an effort to slow the pace of inflation and is expected to continue notching hikes this year. The idea is that as the cost of borrowing rises, consumers will rein in their spending and the resulting lower demand for goods and services will slow price increases.
Beyond reduced emergency savings contributions, inflation also is causing households to delay some financial goals: putting off vacations (33%), paying off credit card debt (22%), buying a car (22%) and buying a home (16%), according to the New York Life research.
At the same time, long-term savings is being less impacted: 72% of those surveyed said they still expect to retire at their desired age.
“Among those not yet retired, we’re seeing this group making necessary adjustments to their financial strategies while not allowing short-term anxiety to derail their plans for retirement,” Huang said.