Americans’ financial optimism hits 16-year high — despite reasons to feel otherwise

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Americans are feeling good about their finances.

More than two in three (69%) Americans say they expect to be financially better off “at this time next year” than they are now, according to a Gallup poll released this week. That’s a 16-year high, and only two percentage points below the all-time high of 71% from March 1998.

What’s more, half of Americans say they are better off now than they were just a year ago. That’s “a post recession milestone — the first time since 2007 that at least half of the public has said they are financially better off than a year ago,” Gallup writes it in its report.

These are numbers that show relatively high levels of optimism, at least in a historical context. “Only 11 times in 109 polls stretching back to 1976 have at least half of those polled said they were in better financial shape than they had been a year prior,” Gallup writes in its report. “Only once in 114 polls going back to 1977 have Americans been more optimistic about their personal finances in the coming year than they are today.”

To be sure, some data shows that Americans are a little less optimistic than they told Gallup. For example, Bankrate’s January financial optimism survey shows that a little over half of Americans did not expect their financial situation to improve in the next year (though more of them thought it would simply stay the same, with just 12% predicting it would worsen).

Whatever we actually feel, there are plenty of reasons to be optimistic: The unemployment rate is hovering around 4%, tappable home equity hit a record high recently, and workers’ pay rose last year. Adds Greg McBride, the chief financial analyst at Bankrate: “This will be another year where people are working and earning more. The economic backdrop this year is such that many disciplined consumers can expect to make financial progress – saving more, increasing their net worth, and having cash flow that permits debt repayment.”

And despite some people calling for a recession in 2019, others say it’s unlikely: “We are not concerned that the US will face an economic recession this year, with that risk coming late 2020,” Jeffrey Eglow, the chief investment officer for Guardian Wealth Advisory, tells Marketwatch.

But all this optimism about how next year is going to be great financially might be a little much — at least according to some financial indicators. Credit card and other revolving debt has been rising, and TransUnion predicts that credit card balances will finish 2019 at $840 billion, up 4% from year-end 2018 — and that delinquency levels will rise (though they will still be relatively low).

Also, many Americans don’t have a ton of savings, which might make it harder to weather a financial shock: Fewer than one in three Americans have 6 months or more worth of income saved in an emergency fund, which is what experts recommend.

And plenty of people do think a recession may be coming quicker than you’d think: Economist Paul Krugman thinks it may happen this year. Nearly 49% of chief financial officers think the U.S. will go into a recession by the end of 2019, according to the Duke University/CFO Global Business Outlook. And economists surveyed by The Wall Street Journal this year said there was an average of about a 25% chance of a recession hitting this year — the highest level in seven years. In addition, the consensus at Davos seemed to be that economic growth was slowing.

The answer, of course, remains to be seen. But whichever way you look at it, remember to focus on the long term: “It is always difficult to predict up and down markets, but one thing is for certain: you will not avoid down markets and bad economies over extended periods of time,” John Hagensen, the founder and managing director of Keystone Wealth Partners, tells MarketWatch. Adds McBride: “Now is the time to be paying off debt, particularly costly credit card debt, and boosting emergency savings in order to better weather an eventual economic storm – whenever that should arrive.”

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