Jill On Money: Confidence shaken after banking debacle
Confidence is an essential component of the financial system.
Without it, worried depositors pull their money from banks; spooked investors don’t trade with firms that they believe won’t make good on purchases or sales; and none of us would accept dollar bills as currency.
Confidence (or lack thereof) is in the news, after a trio of headlines showed that Americans have lost confidence in their banks, the Federal Reserve Chair, and their own financial future.
One immediate outcome of the regional banking system crisis is that people got nervous.
An April Gallup poll found that “nearly half of Americans are anxious about the safety of the money they have in accounts at banks or other financial institutions.”
A total of 48 percent of respondents were either very or moderately concerned about their money – and the poll was conducted before the third leg of the shaky banking stool, First Republic, succumbed, like Silicon Valley and Signature Bank before it. The last time people were this spooked about financial institutions was after the 2008 financial crisis.
A separate question in the Gallup poll that garnered attention asked about confidence in the Federal Reserve Chair Jerome Powell.
After peaking at 50% confidence in 2020, Americans have soured on the Fed. Powell may be getting dinged by those who are frustrated by the Fed’s late start to raising rates to tackle inflation — and also by those who are unhappy with rates being 5% higher than they were 15 months ago.
Powell’s confidence rating dropped to just 36%, slightly worse than the low levels for his predecessors Janet Yellen’s 37% in 2014 and Ben Bernanke’s 39% in 2012.
These results may be sobering, but all three are well above the rock bottom sub-20% confidence that former Fed Chair Paul Volcker earned during the late 1970’s-1980’s, according to George Washington University political scientist Sarah Binder.
Finally, in its 2023 Retirement Confidence Survey (RCS), the Employee Benefit Research Institute (EBRI) found that among those who are working and those who are already retired, confidence in having enough money to live comfortably throughout retirement dropped significantly this year from 2022.
“The last time there was a decline in confidence of this magnitude was in 2008 during the global financial crisis,” the RCS found.
Inflation is the culprit, with workers and retirees reporting that high prices are causing them to spend a lot more money and to eat into their savings. Because inflation has remained higher for longer than expected, “4 in ten workers and 3 in 10 retirees are not confident their money will be able to keep up with inflation in retirement, a significant increase compared with the one-third of workers who felt this way last year.”
A massive 84% of workers and 67% of retirees are concerned that the increasing cost of living will make it harder for them to save money.
Perhaps more worrisome is that many are seeing debt levels rise in response to inflation. Outstanding credit card balances are closing in on $1 trillion, and the cost of servicing that debt has jumped from 14.5% before the Fed started its rate hike campaign, to over 20% today. No wonder confidence is on the wane.
Despite the current gloom that permeates these polls and surveys, I remain oddly optimistic in the power of time to help restore confidence.
Yes, it feels lousy today, but just like in 2008, there was a recovery, and we slowly regained our footing. Or as Julie Andrew sang in the film version of The Sound of Music, “I have confidence that spring will come again. Besides, which you see, I have confidence in me!”
Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at [email protected]. Check her website at www.jillonmoney.com.
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