Pete the Planner: The good, the bad and the ugly of the current economy

Three years ago, many of us were in a dark, dark place. We still didn’t understand the gravity of COVID-19, the economy was effectively shut down, and we were still unsure what our financial futures might look like. If you had offered anything other than a vague, superficial assurance that our financial lives would effectively be better in just three short years, I wouldn’t have believed you.

Yet, here we are.

With a few exceptions, our financial lives are better than they were in February 2020. Our incomes are higher, our investments are worth more, and the value of our homes has skyrocketed. It’s wild to think back to the despair we felt some 38 months ago and realize we came out the other side of that nightmare in a better financial place.

There’s more good than bad, and there is a bit of ugly, but all in all, life is better in 2023. As I explore different areas of financial life, take a moment to reflect on how your reality has evolved.

The good

I didn’t exactly know what it would take to significantly increase wages across the board, but apparently the answer was a global pandemic. In April 2021, wages grew 14.79% from the prior year. Although it’s worth noting that wages fell just over 5% the previous year. Hourly workers received substantial raises, salaried workers saw large increases in pay, and gratuity culture found its peak. And while inflation has tried its best to sour the impact of wage growth, people are earning significantly more than they did three years ago.

I’m writing this week’s column in my home office—the same one I was sequestered in three years ago when it was worth substantially less. Real estate prices went bananas over the last few years, which has sent net worth soaring. Sure, it’s difficult to take full advantage of the massive increase in equity, but you do have more money on paper than you did three years ago.

Speaking of more money, unless you pulled the ripcord and floated back down to Earth in March 2020, your investments are likely worth more now than before the pandemic. In fact, the S&P 500 is up roughly 28% since the market high in mid-February 2020.

The bad

How quickly we forget. In the spring of 2020, many American households had pressed reset on their monthly spending. Every expense was scrutinized, and—other than groceries, carryout and hand sanitizer—we weren’t really spending much money. Well, at least up until the home renovation boom of late 2020.

Yet over the last three years, our spending has returned to “normal.” Yes, inflation has played a role in that, which we’ll discuss in a moment, but our discretionary spending has ratcheted up too.

As you might guess, our spending increase has led to significant increases in household debt. I hesitate to share that our collective household debt has surpassed $17 trillion, primarily because that’s an unfathomable number that likely means nothing to you. I believe pent-up consumer demand, mixed with copious amounts of government stimulus, is what’s brought us to the debt crater.

The ugly

Three new generations felt the impact of runaway inflation for the first time, and it’s been earth-shattering. The pandemic hasn’t been the only culprit in regard to high prices; the war in Ukraine, gray corporate ethics and supply chain challenges have driven prices higher than any of us want.

Sure, it’s fun to receive 4.5% on a bank account, but when compared with high lending rates and the inflation we just discussed, that 4.5% arguably still has you losing buying power. I received a 2.5% interest rate just before the chaos of 2020, and it’s gonna be a long time before we see those rates again.

Finally, we’re in a significantly worse place than ever in regard to student loans. Borrowers have kicked the can down the road and will continue to do so for another few months, as student loan payments haven’t been due since March 2020. While this emergency action by the Trump administration made sense at some point, those days are further behind us than my wiping down of my weekly groceries. Those who borrowed for their college education were frozen in place over the last three years, both by choice and influence.•

__________

Dunn is CEO of Your Money Line powered by Pete the Planner, which is focused on solving employees’ financial challenges. Email financial questions to askpete@petetheplanner.com.