Middle-income Americans feel more optimism about finances and economy's direction: survey

Although inflation is still a top concern, middle-income Americans said they've gotten used to higher prices and feel better equipped to handle their finances, according to a recent Santander survey.

Additionally, worries about an economic recession have taken a backseat for many Americans as they begin to accept the high-interest rate environment as the new normal. The number of respondents who expected a recession in the next 12 months dropped from 69% to 60%.

Consumer confidence hit a record high of 79.4 in March, the highest since July 2021, according to the University of Michigan's benchmark Consumer Sentiment Index. The number reflects the improved consumer outlook that inflation will continue to soften and that personal finances will also be lifted as the effects of high prices and expenses on living standards ease.

However, consumers have had to make deep budget cuts to survive in a high-cost environment—67% of respondents said they cut out major purchases such as vacations, vehicles and home repairs, according to the survey.

"While middle-income households have had to navigate higher prices due to inflation, it is encouraging to see consumers taking positive steps to manage their finances and adjust their household budgets," Tim Wennes, CEO of Santander U.S., said.

BIDEN WANTS TO GIVE HOMEBUYERS $400 PER MONTH: STATE OF THE UNION

Americans can earn more on savings

Despite 74% of respondents saying they believe they are on the right path to financial prosperity, 60% are missing out on an opportunity to grow savings in a high-rate environment, with 56% still earning less than 3% interest, according to the survey.

"At the same time, many continue to miss out on the opportunity to leverage the current rate environment to grow their savings," Wennes said. "For most consumers, this is the first time in a generation when they can be earning meaningful interest on their hard-earned savings."

The Federal Reserve has raised interest rates 11 times since March 2022, pushing the federal funds rate to a 22-year high of 5.25% to 5.5% to lower soaring inflation.

Middle Americans could offset high costs by moving money into higher-yielding accounts like certificates of deposit (CD) and high-yield savings accounts. With CDs, cash is deposited for a fixed period, ranging from a few months to several years. In exchange, those funds earn a higher interest rate when compared to regular savings accounts. A high-yield savings account, also known as a high-interest account, offers higher interest rates on deposits than a traditional one. The interest rate is an annual percentage yield (APY) that fluctuates. However, these accounts allow you to make deposits and withdrawals.

HOMEBUYERS GAINED THOUSANDS OF DOLLARS AS MORTGAGE INTEREST RATES FALL: REDFIN

Housing is still out of reach for many

The combination of high borrowing rates and home prices has put the dream of homeownership on ice for many would-be homebuyers.

The average 30-year fixed-rate mortgage has not dropped below 6.6% this year. Home prices recorded another gain in January and are now 6% above their level this time last year, up from 5.6% rise last month, according to the latest S&P CoreLogic Case-Shiller Indices report.

Higher mortgage rates and home prices mean that 20% of Americans spend roughly 30% of their paychecks on monthly home loan payments and 10% spend more than half of their pay on their mortgage, according to a recent NewHomesMates.com survey.

"When you're saving up for a house, it can be hard to justify spending money on other things," a NewHomesMate spokesperson said in a statement. "But the unprecedented high costs of today's real estate are forcing potential buyers to make some extreme decisions. Not only are they slashing leisure spending and travel, but many are also cutting back on basic items like groceries."

HIGH HOMEOWNERS INSURANCE RATES SCARING AWAY FLORIDA HOMEBUYERS, OTHER STATES FACE THE SAME ISSUE

Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.