The financial devastation wrought by the COVID-19 pandemic has prompted Americans to begin building a cushion against tough times, but many of us still have a long way to go, research shows.
A third of respondents in Northwestern Mutual's Planning and Progress Study 2021 said they had saved more in the prior 12 months than they had previously. And 83% of the 2,320 adult respondents in the March 2021 poll said they created, revisited or adjusted their financial plan during the pandemic.
"Many people now see the importance of being prepared for the unknown, which can happen with very little warning," said Kimberly Bridges, director of financial planning at BOK Financial®. "It was a wake-up call for how you must plan for uncertainties, and one of the best steps to do that is to create an emergency fund.
"The way the shutdown hit everyone at the same time in the same way and was completely out of our control proved to be an eye-opener for many," she said. "More of us saw the need to be prepared in order to weather unexpected challenges."
Such holistic thinking likely contributed to reduced living costs (45%), paying down debt (34%) and increased investing (33%), the study found. As a result, personal savings rose an average of 10% and retirement savings grew an average of 13% between early 2020 and early 2021.
"I think the nature of the shutdown helped, as spending options were reduced," Bridges said. "No travel. No going out to restaurants. No in-store shopping. It was an unexpected outcome that really became an opportunity for families to save some money."
Many still hurting
The Northwestern Mutual study also underscores that many households have continued to struggle since the outset of the pandemic in March 2020, as 31% of those polled revealed they're saving less or have stopped saving altogether, and 9% said they had to tap into savings to make ends meet.
Some of the hardest hit have been women, who left the workforce in much larger numbers than men—during the first six months of the pandemic, more than 2.6 million women stopped working vs. 1.7 million men. Mothers accounted for much of the imbalance as they stepped away from jobs when faced with the demands of juggling work with the bulk of child care duties, housework and remote education in their homes.
"We've heard a lot about a K-shaped recovery, where many are experiencing a quick recovery, but others have gone from bad to worse," Bridges said.
Nearly one in four survey respondents said they plan to retire later than they previously thought. Of those putting off retirement, 39% said they expect to exit the work world three to five years later than originally planned, and 35% said they were now eyeing an additional decade or more in the workforce. Separately, 35% said they had postponed a significant financial or life decision because of the pandemic.
Yet, Bridges also saw a pragmatic turn in the survey. For example, 55% of those delaying retirement are doing so out of a desire to work and save more money, especially with the emergence of more flexible work arrangements. Half said they are concerned about rising healthcare costs, including unexpected medical expenses.
"Healthcare cost awareness soared because this was a pandemic—we all saw that even if you exercise regularly, eat right and have no underlying conditions, it doesn't mean you won't have to deal with an expensive healthcare bill," she said.
Conversely, nearly half of those surveyed are pledging to take a different tack by retiring three to five years earlier than previously planned. Leading reasons for the shift included wanting to spend more time with loved ones and focusing on interests outside of work.
“We’ve seen a huge shift in priorities—some have determined that time with family is more important than adding more money to their retirement accounts.”- Kimberly Bridges, director of financial planning at BOK Financial
Debt's overhang remains
Pandemic or not, the typical American's top financial nemesis remains debt.
Although the survey found that the amount of non-mortgage debt held by the average American dropped more than 20% between 2019-21, it still totaled more than $23,000 earlier this year. Debt payments typically consume 30% of average monthly income, a burden that kept 29% of those polled from making significant purchases, 18% from saving for retirement and 14% from buying a home.
"Too many people get into credit card debt that creates such a ball and chain that it will take years and years to break free from it," Bridges said. "Often when things are going well, people assume that the good times will roll on forever, so they take on additional obligations, believing that the income will always be there to pay off the debt.
“One of the lessons from this pandemic is that our circumstances can quickly change in unexpected ways, so we need to be cautious about over-extending ourselves and always be prepared for potential financial shocks, starting with an emergency fund.”- Kimberly Bridges, director of financial planning at BOK Financial