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Whether the economy is doing well depends on who you ask. According to a new survey by Edward Jones, Americans are divided on how they view the current economic situation – 45% are optimistic and almost as many (42%) are pessimistic. And Americans’ views of the economy also influence their financial behavior and the decisions they make with their money, the survey found.
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Here’s a closer look at why Americans are divided in their views on the economy and the financial implications of these different attitudes.
Why Americans are divided over the state of the economy
Some Americans are more affected by changes in the economy than others, and those who have felt the negative effects first-hand are more likely to have a negative outlook.
“Investors have faced disruptive conditions over the past year, and some may feel the greater impact of inflation, rising interest rates or job uncertainty,” said Mona Mahajan, Senior Investment Strategist at Edward Jones. “The pandemic has also brought a change of perspective for many investors, which, in addition to finances, is also focusing more on health, family and meaning.”
Those who are pessimistic about the economy are most concerned about the inflation rate (83%), supply chain issues (77%), the employment rate (71%) and interest rates (71%).
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Americans who are worried about the economy are more likely to change their financial behavior
The survey found a link between concern and action. The more concerned adults are about economic conditions, the greater the impact those concerns have on their financial decisions. In fact, 2 in 5 US adults (41%) have considered the rate of inflation when making financial decisions over the past nine months.
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“For many investors, concerns about broader economic trends can lead to fears about personal finances,” Mahajan said. “Investors will often want to take action in their investment portfolios to mitigate these feelings, for better or for worse. Our survey found that one in five Americans (21%) admit to making emotional decisions when it comes to their personal finances. That number is even higher (37%) for Gen Z investors. However, these emotional responses can lead to financial decisions that ultimately are not in the best interest of the investor.”
Mahajan warns against letting your fears about the economy mislead you into making hasty investment decisions.
“The disruptive conditions of the economy can cause people to rethink investments and create emotional shifts to buy or sell. So it’s important to seek advice from a financial advisor whenever possible and develop a long-term financial strategy,” she said.
Should you reevaluate your financial decisions in the current economy?
While you should not make decisions based on emotions, there may be some financial changes that would be beneficial to you in this current environment. The key is to be well informed before making any of these money moves.
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“We found that trusted financial advisors can play a key role in building financial literacy and trust — two important elements in building financial resilience,” Mahajan said. “Often investors make changes to their portfolios that aren’t in their best interests just to satisfy a need to do something – financial advisors can help determine when and how to act. If you’re concerned about the economy, this might be a good time to invest in your financial education and consult a financial advisor to help you navigate the current economic conditions.”
Smart steps everyone should be taking in this economy
While the best financial strategy in the current economic climate will depend on your individual circumstances, there are some things everyone should be considering right now. The first is to stick to your long-term goals.
“It’s important to focus on long-term goals and develop a financial strategy to achieve them,” Mahajan said. “Without an informed decision-making process, there can often be impulsive reactions to the news of the day. Having a plan makes it easier to stay on course and not let market fluctuations lead to hasty decisions.”
It’s also a good idea to consult with a financial advisor.
“Respondents indicated that working with a financial advisor can help them feel less stress (25%) and frustration (16%) and also reduce anxiety (72%) and concerns (61%) about making financial decisions” , Mahajan said.
Finally, you should maintain a diversified portfolio and regularly review your goals.
“Having a diversified portfolio that you can constantly review is key to fostering stability and personal finance literacy,” Mahajan said. “While diversification cannot protect against loss, it can help reduce risk and provide financial relief.”
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About the author
Gabrielle joined GOBankingRates in 2017 and brings with her a decade of experience in the journalism industry. Before joining the team, she was a staff writer and reporter for People Magazine and People.com. Her work is also on E! Online, Us Weekly, Patch, Sweety High and Discover Los Angeles, and she was featured on Good Morning America as a celebrity news pundit.
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