66% are concerned that a recession is approaching. What matters most to each generation?

A customer shops at a Kroger grocery store on July 15, 2022 in Houston.

Brandon Bell | Getty Images

While experts debate whether the United States is on the brink of economic downturn, many Americans are already preparing for a recession.

To this point, 66% of Americans worry that a recession is approaching, up from 48% who said the same thing a year ago, according to a survey by North American Allianz Life Insurance Company.

One of the main reasons is that people fear rising inflation, which has led to higher prices for goods and services.

The survey found that 82% are concerned that inflation will have a negative impact on their purchasing power in the next six months. Moreover, the same pollsters said they expect inflation to worsen over the next 12 months.

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Meanwhile, 71% said their wages are not keeping pace with rising expenses.

(Allianz Live conducted the survey online in June and included just over 1,000 individuals.)

Data released last week by the US Commerce Department heightened fears of an economic recession, with gross domestic product falling for the second consecutive quarter, in a traditional reference to a recession.

However, the The White House quickly refused Speculation that a recession has already begun, President Joe Biden cited a record low unemployment rate, among other factors.

Consumer spending rose 1.1% in June due to higher inflation, according to government data released last week.

However, with recession fears growing, it may actually prompt Americans to change the way they handle their money.

Why a recession can be consumer led

Even with the latest data, consumer spending has remained largely flat over the past seven months, according to Jonathan Bingle, chief US economist at UBS.

At the beginning of the year, households were doing well with increased savings and strong gains in the labor market. But then, high gas prices and rising interest rates piled up.

“Overall, the trajectory of consumer spending has proven to be much weaker than most people expected,” Bingle said. “Where we’re sitting right now is in a weak spot for the economy.”

The big question experts are now discussing is whether or not the country is actually in a recession.

The UBS probability model currently has a 40% chance of a recession in the next 12 months. Bingle said the first-quarter slowdown in GDP had some “really tumultuous” components, which were a recovery from a strong fourth quarter in 2021, making the reason for the quarter-to-quarter decline still inconclusive.

A consumer-led recession is one way a US economic downturn could trigger, according to a recent UBS research report. Another scenario could be caused by Fed overheating.

If consumer spending declines, Bingle said, it could be a confidence shock. This could be driven by increased precautionary savings for households as they worry about the future and put off purchases.

Increasing savings and spending less are surely the advice generally given to individuals who want to reduce the impact of an economic downturn on their finances.

Pay off your debts, increase your savings, and keep making retirement savings contributions during ups and downs,” said Greg McBride, Senior Vice President and Chief Financial Analyst at Bankrate.com.

“In the long run, when you look back, you’ll be really happy that you invested in 2022,” he said.

How do recession fears differ across generations?

However, Allianz Life’s latest survey found that 65% of investors say they are keeping more money out of the market right now due to fears of losses.

For baby boomers, the number one concern, cited by 73%, is that they won’t be able to afford the lifestyle they want in retirement due to rising costs. This was up from 66% of those who reported this concern in the first quarter.

“Having that kind of deflation combined with that kind of inflation for a newly retired person can deplete your assets much faster than you ever expected,” said Kelly Lavin, Vice President of Consumer Insights at Allianz Life.

For Generation X, the biggest concern is that their income isn’t keeping pace with rising costs, according to 75% of respondents, up from 68% in the first quarter.

Having that kind of deflation combined with that kind of inflation for a newly retired person can deplete your assets faster than you ever expected.

Kelly Lavigne

Vice President of Consumer Insights at Allianz Life

Meanwhile, fewer millennials have a fiscal plan to deal with rising inflation. The survey found that 56% currently have such a plan, down from 61% in the first quarter.

For all individuals, Lavigne said, having a fiscal plan in place can help reduce the impact of economic uncertainty.

“Regardless of whether you think you have enough money or not, there is a right financial advisor for you,” Lavigne said. “It’s never too early, and certainly never too late.

“Not having a plan is the worst thing you can do,” he added.

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