The American Council of Life Insurers (ACLI) has released its Financial Resilience Index for January 2025, revealing a cautiously optimistic outlook for middle-class households as they navigate ongoing financial pressures. The Index is a critical tool that assesses how well these households manage economic challenges and plan their financial futures amidst fluctuating costs.
The latest findings highlight that while inflation generally cools, middle-class families still struggle with elevated living expenses. Nevertheless, strong income growth and a robust stock market throughout 2024 have helped bolster their financial positions. “Life insurers are focused on helping middle-class households, which is why we created the Index to track how these households are doing financially,” said ACLI President and CEO David Chavern. He emphasized the unique vulnerabilities of these households, further underscoring the importance of a reliable metric to measure their financial resilience.
The Financial Resilience Index, which assigns a score based on various economic metrics, significantly improved in Q3 2024. The Headline Index score reached 31.8—a jump of 7 points from Q2 2024 and an impressive 18 points compared to the previous quarter. This upward trajectory in the Index suggests that middle-class financial resilience is gaining momentum.
Notably, inflation reached alarmingly high levels in 2022 and has eased significantly. Nevertheless, many middle-class families still feel the pinch, particularly from high housing and childcare costs. While wage growth has slowed, it exceeds historical averages for most middle-class earners. The stock market’s performance has also played a pivotal role, with increases in retirement assets reducing financial stress and improving retirement readiness among middle-class households.
To further understand the financial landscape for middle-class Americans, ACLI conducted a nationally representative survey through The Harris Poll. The survey provides insight into how these households view their financial stability. Key findings reveal that only 52% of middle-class respondents feel confident they could recover from a sudden $5,000 expense. Alarmingly, 20% of these households have less than one month’s living expenses readily available in savings.
Demographic disparities emerged as a significant theme in the survey results. Rural middle-class households reported a particular struggle, with half indicating they have three or fewer months of accessible savings. In contrast, 37% of urban and 38% of suburban households reported the same. Households with children also face additional challenges; only 43% feel confident about handling unexpected expenses compared to 56% of households without children. Furthermore, 28% of families with children have less than one month of living expenses in readily accessible savings.
While these statistics paint a somewhat concerning picture for many middle-class families, there are brighter notes within specific demographics. Middle-class seniors aged 65 and older exhibit notably higher levels of financial resilience. According to the report, 68% of seniors are confident or very confident about recovering from a $5,000 unexpected expense, and more than half have over six months of living expenses in readily accessible savings. Small business owners within the middle-class demographic also show stronger financial positions, with 42% having substantial savings buffers.
ACLI Chief Economist Andrew Melnyk points to resource growth as a pivotal factor enabling the middle class to weather recent years marked by high inflation. Despite alleviating inflation pressures, Melnyk noted that wage growth has slowed but remains well above historical averages—a crucial element for sustaining financial resilience. He stated, “While inflation has gone down considerably, it remains a bit sticky. If incomes and assets continue to grow, easing inflation would only help alleviate the burden that higher living costs have placed on America’s middle class.”
In summary, the Financial Resilience Index paints a nuanced picture of the challenges facing middle-class households in America. While significant challenges are ahead, particularly regarding accessible savings and rising costs, the overall trends suggest a slow but positive shift toward improved financial stability. As the middle class continues to adapt and respond to these economic conditions, the insights provided by the Index will be invaluable in tracking progress and identifying areas needing support and intervention. The ongoing efforts by life insurers and financial institutions to address the vulnerabilities of middle-class families will be critical in fostering a more secure economic future for this vital population segment.
