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There are many measurements used to determine our economic conditions and one of them is the Financial Security Index. The most popular index, or probably they were the one to start measuring it, is from Bankrate.
It is a lot similar to the Consumer Confidence Index that is done by The Conference Board. Although they are opinionated, a lot of experts look at them to figure out the personal feelings that consumer has about their own financial standing. In effect, the experts can also determine their sentiments about the economy in general.
Consumers can also benefit from this knowledge because it will help them make plans to secure their own financial standing. Even if you think that your individual wealth concerns seem trivial in light of the general economic condition, it still adds up to affect everyone else. Think about it. If everyone in your neighborhood is individually confident about their own personal finances, that means the overall economic situation in your neighborhood is great. If all the neighborhood in the county feels the same way, then things are looking great for the whole county.
In 2011, Gallup.com conducted a survey that revealed that the top financial concern of Americans is the lack of money or low wages. According to the report, 17% of the respondents worry about the money coming in every month. Next to that is health care costs and too much debt.
Let us see if the financial security index from Bankrate this February says the same thing.
6 important components of Bankrate’s financial security survey
This particular index is done by Bankrate every month to measure the average feeling of security that Americans have towards their personal finances - at least compared to a year ago. This survey is done by Princeton Survey Research Associates International on behalf of Bankrate.
When the index is 100, it means the index is unchanged. If it is below 100 it shows a declining feeling of financial security. It is is higher than 100, it means an increase. Based on the findings from this survey, the overall financial security index is at 99.3. It is lower than December 2013 and January 2014 but is about the same level as November of last year.
Bankrate based the computation for this index on 6 different questions.
Which is greater: credit card debt or savings?
The first question involved the relationship between the debt and savings of the consumer - specifically credit card debt. 51% of respondents mentioned that their emergency fund is bigger than their credit card debt. 28% admitted that their debt is bigger - most of them have a full-time job. 17% said they do not have both credit card debt and savings.
How is the current job security compared to a year ago?
The second question involved the job security of respondents. 61% mentioned that they feel the same a year ago - their job security neither improved nor declined. 23% felt that is was more secure while 16% said it was less. This is probably due to the fact that jobs are currently being created and unemployment is lower. The survey revealed that more men feel secure about their jobs compared to women. It is also important to note that low-income earner has a higher sense of financial security.
How is the saving level compared to a year ago?
The survey also asked about the state of the consumer’s savings. 47% reported to having the same as 12 months ago. 15% are more comfortable with their savings while 36% are less comfortable. More men also admitted to feeling more confident about personal finances - at least when it comes to their savings. Those who are about to retire are noted to be more apprehensive about their savings. The same is true for low-income workers.
How is the debt level compared to a year ago?
The next question focused on debt. 50% revealed that their debt is the same as before. It was also a tie between those who felt more comfortable with their debts and those who felt less comfortable. Both of them are at 24%. It was noted by the survey that the people who earned more felt a higher level of confidence about their debts.
How is the net worth compared to a year ago?
50% of the respondents revealed that their net worth is unchanged and 25% said that it is higher. 18% admitted a lower net worth compared to 12 months ago - most of which are from rural communities. The men also reported to having more net worth than before.
How is the overall financial security compared to a year ago?
Based on the survey, 51% felt the same amount of financial security as before. Those who felt less were 24% and those who felt an improvement is also 24%. It was also observed that more college graduates felt more confident about their financial situation than those who did not get a higher education. It should also be noted that retirees also felt more good about their financial standing than those who are still working.
What does this measurement of financial stability mean for consumers?
So what does all of this mean for consumers? What can be learned from the financial security index provided by Bankrate?
Well compared to the January 2014 financial security index of 102.6, the February results are declining. But does that mean consumers are making more mistakes when it comes to their finances? It is not really fair to make that assumption. If ever, what we have to note is that most of the respondents reported no change since last year. The question here is, should we be happy with a stagnant financial progress that is apparently the norm today?
What is the real situation?
Consumers are wising up and prioritizing their savings instead of taking in more debt. It is also interesting to note that those who are working have more debt - that could mean that they are more confident to take on debt because they have the means to pay it back. On the other hand, retirees are reported to have more savings - naturally because they need to stretch their retirement fund to last.
Compared to the January results, more people feel secure about their jobs. This coincides with the higher employment rate that the country is currently enjoying. More than the added job, the stability of the economy make people more confident about their work.
Although the majority is saving, there is still a high percentage of people who are not comfortable with their savings. 36% is still high and that means people should put in more effort to save rather than take in more debt.
Those who just entered the workforce are understandably less comfortable with the credit that they owe. Retirees are also admitting to feeling more comfortable with their debt level compared to those who are working.
The financial improvements are concentrated on the urban and suburban areas. This is probably because the businesses and job opportunities are focused on the urban areas. That means we still need to help the rural areas find financial stability by giving them access to the same opportunities as those in the urban areas.
How to increase your confidence about your financial standing
It can be generally assumed that the financial security index does not show much improvement as the government tells us. That simply means the consumer is not feeling much of the improvements being proclaimed by our government. Does that mean the government is lying?
Maybe or maybe not. Or they could simply be exaggerating to boost the morale of the people. But truth be told, if you look at the details of this index, you will realize that the effort to improve your financial security really lies in your own actions. If you want to increase your financial security, stop looking at what you see around you and just concentrate on what you can do to help yourself. With that, here are some of our suggestions.
Get rid of your debts.
First of all, you have to do something about your debts. This can unnecessarily eat up a part of your income so try to solve this problem as fast as you can. Research your debt relief options like debt consolidation. Learn what is involved in consolidating debt and figure out if it is the right debt solution for you.
Build up your emergency fund.
If you can get out of debt while still adding to your savings, that is the best way to achieve financial security fast. Prepare for the unexpected so you don’t have to stress yourself out when an emergency strikes.
Save for the future.
This is another way for you to secure your finances for the future. Just save for the things that you know you will need to spend on.
Plan for everything.
Security comes from being in control of every situation. To make that happen, you should try to plan for everything. Being spontaneous is fun but not when it involves your money.