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Financial Stress Remains High, Though Easing Amid Labor Market Recovery

Americans are highly stressed about their finances amid the coronavirus crisis, as millions remain unemployed, additional federal relief lingers in limbo, and a resurgence of COVID-19 cases throughout the country furthers uncertainty over the pace of economic recovery, according to recent readings of the Investor’s Business Daily/TIPP Financial-Related Stress Index, a monthly measure of Americans’ views on their financial health. However, financial stress levels have steadily declined since peaking at an all-time high in April, suggesting that Americans are feeling more secure about their financial circumstances amid a rebound in hiring, a stock market rally, and generous federal assistance. Thus, as Americans slowly regain confidence in their finances, we expect consumer spending to pick up in the months ahead.

Investor’s Business Daily and TechnoMetrica developed the Financial-Related Stress Index to assess Americans’ perceptions of their financial situations. The index is calculated using responses to the following question posed each month in the IBD/TIPP Poll: Thinking of your personal finances, compared to the past three months, do you feel more stressed these days, less stressed these days, or feel the same level of stress? An index reading below 50.0 indicates lower levels of financial stress, while a reading above 50.0 signals higher financial stress levels. A score of 50.0 is neutral.

Financial Stress

The Financial-Related Stress Index came in at 62.9 in August, its sixth consecutive month above a score of 50.0, indicating elevated levels of financial stress. This month’s reading stands in stark contrast with financial stress levels reported at the start of the year, highlighting the dramatic toll that COVID-19 has taken on Americans’ sense of financial security. For instance, the August index is 15.8 points above a reading of 47.1 back in January, which is the lowest score on record, and 14.8 points higher than a February index of 48.1.

Financial stress has soared across all regions since before the crisis. Between February and August, the Midwest has posted the largest gain in the index, from 46.4 to 63.9, a difference of 17.5 points. The South has seen a 16.4-point surge in money stress levels during the same period, from 45.8 to 62.2. In the West, financial stress has jumped 12 points, from 51.1 in February to 63.1 in August. Meanwhile, stress among Northeastern households has increased by 11.4 points since February, from 51.4 to 62.8.
 
While financial stress remains high, recent trends in the index suggest that Americans are beginning to feel more confident about their finances, as the labor market recovers and hefty relief from the federal government help soften the economic pain created by the coronavirus crisis for many households. The index has fallen for four straight months since hitting a record high of 69.8 in April, and is now at its lowest point since early March, right before the coronavirus-induced lockdown began. Also, the index remains below its three-month average of 63.3, indicating that Americans’ money worries will ease further in the coming months, potentially giving a boost to consumer spending.

The IBD/TIPP Financial-Related Stress Index is developed from an online survey of 1,212 U.S. adults fielded from July 25 to July 28.



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