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Emergency savings suffered when households adjusted short-term finances

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Emergency savings suffered when households adjusted short-term finances

On May 16, 2022, a woman pushes a basket through a grocery passage to Target in Anapolis, Maryland, as Americans prepare for a summer shock with stickers as inflation continues to rise.

Jim Watson AFP | Getty Images

Emergency savings seem to be another victim of high inflation.

About one-third of adults contribute less to their emergency funds so they can cover their daily expenses, according to research conducted by New York Life Insurance. The average reduction in monthly contributions to these emergency accounts is $ 243, with millennials making the biggest split: $ 289.

“While it is worrying that rising costs of everyday goods and regular expenses could devastate the necessary financial cushion, this environment means that households are making informed decisions about how to adjust their financial strategy so that it is most reasonable for them.” he said. Dylan Huang, head of retirement and capital management solutions at New York Life.

Inflation is coming 8.3% year on year, according to the latest dimension from the U.S. Bureau of Labor Statistics. Although it is slightly below the March peak of 8.5%, it is still the fastest annual rate in about four decades and well above Federal Reserve target of 2%.

The Fed has already raised its key interest rate twice this year to slow inflation, and is expected to continue raising this year. The idea is that as the cost of credit rises, consumers will restrain their spending, and as a result, declining demand for goods and services will slow down prices.

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In addition to reducing contributions to emergency savings, inflation is also forcing households to postpone some financial goals: postpone vacations (33%), pay off credit card debt (22%), buy a car (22%) and buy a house (16%), according to the study New York Life.

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

“Among those who have not yet retired, we see that this group is making the necessary adjustments to its financial strategy by not allowing short-term anxiety to thwart their retirement plans,” Juan said.

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