| May 4, 2016

Why Aren’t You Feeling More Financially Optimistic?

Consumer sentiment in April is lower than expected.

Financial optimism and consumer confidence have a bigger impact on the economy than you might think. Everyone from government agencies to corporate businesses follow consumer sentiment data carefully to see how consumers are feeling at any given time. They do so because when consumers are feeling confident, they’re more likely to spend money, invest and even make major financing purchases like buying a new car or home.

 

So when you have a report from CNBC that consumer sentiment is notably lower in April than expected, experts and pundits all start to scramble to find out why. The Consumer Sentiment Index in April hit 89.7, but according to analysts it was supposed to be higher – 92, in fact. What’s more consumer sentiment in March was at 91, so it seems like people’s confidence in finance and the economy is actually slipping.

Which leaves the question we led with – Why aren’t consumers feeling more financially optimistic?

Many experts point to key economic indicators for why people aren’t feeling more confident about the economy.

“Consumers reported a slowdown in expected wage gains, weakening inflation-adjusted income expectations, and growing concerns that slowing economic growth would reduce the pace of job creation,” said Richard Curtin, the chief economist of the survey. “These apprehensions should ease as the economy rebounds from its dismal start in the first quarter of 2016.”

However, responses from the survey also seem to indicate that people’s feelings about the election are actually what’s driving consumer sentiment down. Roughly one in five respondents to the consumer sentiment survey felt, “the election results would impact government policies that would result in negative economic outcomes.”

In fact, those one in five political worriers were so worried that their negative feelings actually outweighed the positive or neutral feelings on the election that the other 80% of survey respondents had. You probably know (or maybe you are) one of these worriers – you think the world is going to go to hell in a handbasket because whatever candidate we end up electing won’t be right for the job.

5 financial tips in the face of political uncertainty

Whether you think this election is the end of the world as we know it or you think it will likely end up being business as usual, it can hurt to shore up your finances in case the “idiots in Washington” screw things up for the rest of us after November.

So what can you do to protect your finances in the face of an uncertain future being caused by a crazy election? We offer you these five tips:

  1. Make sure you have emergency savings. If the job market crashes for some reason after the election, massive employment cuts may follow. So make sure you have enough savings to cover 3-6 months of the necessary expenses in your budget in case you lose your job. This will keep you from relying on credit cards to cover gaps in your income.
  2. Take advantage of government programs now. Government programs can change following an election as programs get cut, lose funding or get changed by new executive orders. With that in mind, take advantage of any federal programs that may benefit you now. That includes refinancing your home through HARP or modifying an underwater mortgage through HAMP. It also includes things like federal student loan consolidation programs that roll your federal loans into a low monthly payment. If you have those types of debts, take advantage of government programs that apply to them now.
  3. Avoid messing with your home equity. The real estate market is largely recovered from the collapse of 2008 and most property values are going up, but just because you have equity available it doesn’t mean you should take out a second mortgage or get a home equity line of credit. Leave your equity alone in case the market takes another turn, or you could find yourself in a bad situation with your mortgage and facing foreclosure.
  4. Eliminate credit card debt. Having outstanding debt that’s unpaid is not a good idea in the face of financial uncertainty. The less debt you have hanging over you, the less stress you’ll have if the economy takes a turn for the worse. If you have balances on your credit cards, look into ways to reduce the debt. If you can’t pay it off using traditional means, consider debt consolidation or a debt management program through a credit counseling agency.
  5. Talk to a financial adviser. If you have a 401(k) or an IRA – even if you don’t have any other investments – you should talk to a financial planner or wealth manager. They can help you ensure your retirement investments are as secure as possible in case the economy crashes again so you don’t lose everything. Let them know that you want to be conservative right now ahead of the election and they can advise you on how to make that happen.

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