As more Americans in the middle class lost financial ground in 2015, they’re also more financially mindful and plan to make financial resolutions in 2016 given rising interest rates and the financial volatility in 2015. Saving more, spending less, paying down debt – and especially managing their growing burden of health care costs – will be peoples’ money-coping strategies in the New Year. In the short-term, that means shopping for health insurance, understanding health care costs, and putting money into health savings accounts. For the longer term, this will translate into saving more for retirement, and health care in retirement.

The shrinking middle class

The middle class in the U.S. is, “no longer the majority and falling behind financially,” the Pew Research Center asserted in a study published in December 2015. The data tell the story of middle-class shrinkage: in 1971, 61% fell into the middle income tier; in 2015, 50% were middle-income. There was good news for people with upper incomes: their ranks grew by 50% in the period, from 14% of all U.S. adults in 1971 to 21% in 2015.

Pew share of adults JPEG 1-19-16

Middle-income households in America have fallen behind: median income was 4% lower for these people in 2014 than in 2000, and their wealth in terms of net assets (assets less debts) dropped by 28% between 2001 and 2013.


“The hollowing of the American middle class has proceeded steadily for more than four decades,” the Pew Research Center announced in a 2015 report. Since 1971, every decade ended with fewer U.S. adults living in middle-income households than at the beginning of the decade.


Greater focus on physical and financial wellness

Achieving health and wellness, along with financial stability, are top goals for 2016 among Americans, according to the 7th annual New Year’s Resolution survey from Allianz Life Insurance Company of North America. Nearly one-half of people put health/wellness on top, followed by 29% of Americans focusing on financial health. When it comes to keeping those resolutions, about the same proportion of people believe they’ll keep diet/exercise plans and financial planning.

But, keeping in mind the shrinking middle class, nearly one-third of Americans told Allianz they won’t focus on financial planning in their personal resolutions because they “don’t make enough money to worry about it,” the poll found.

Allianz Life notes that stagnant wages were a top concern, and that 1 in 3 people worry that another major recession could happen in 2016.


In 2016, financial mindfulness and New Year’s Resolutions…

 In the midst of health financial challenges and the middle class losing personal economic ground, Americans’ financial can-do spirit is evident at 2015 year-end, Fidelity Investments found. Financial resolutions are making a comeback, Fidelity asserts, based on the firm’s poll of U.S. consumers in the seventh annual New Year Financial Resolutions Study. Fidelity polled U.S. consumers in October 2015.

Fidelity - Americans priotizing finances for New Years resolutions in 2016

Source: Fidelity Investments, 2016 New Year Financial Resolutions Study, December 2015


On the upside, 72% of people anticipate being financially better off in 2016. On the downside, 62% of people are most worried about unexpected expenses, the economy (with 53% concerned) and health care costs (with 47%). Medical debt is a big part of this concern: among people saying they’ve accumulated more debt overall this year, 19% said unexpected or higher medical costs were the main cause. This is three times the rate found in 2011 as the top reason—a figure that’s almost tripled from 2011, when only seven percent cited it as the No. 1 reason.

Among those people in the Fidelity study who nearly or completely achieved their 2015 resolution, 56% said they were in a better financial situation this year, compared to 34% of those who didn’t achieve their resolution. 51% were less in debt, versus 40% who failed to keep their resolution.

It follows, then, that Fidelity discovered people who make money resolutions feel more financially well than people who don’t. This year, the top financial resolution is to save more (54%), followed far behind by spending less (19%) and paying off debt (16%). While lowering debt comes in third at 16%, this is an improvement over consumers’ 2015 financial resolutions, when only 11% set the goal, and 5% the year before. One factor bolstering more Americans looking to lower debt is the Federal Reserve’s decision to raise interest rates for the first time since 2006, making 2016 a year to commit to reducing personal debt.

In 2015, health care stories ranked high in media coverage, and two stories were deeply covered: the rising costs of specialty drugs, causing sticker shock among people with Hepatitis C and payors like the VA unable to cover costs for all Hep C-diagnosed veterans; and, the hockey-stick growth of people enrolled in high-deductible health plans, shown in the line chart.

Towers Perrin Adoption of HDHPs over time to 2015

Both Democratic and Republican voters want to know what the next U.S. president will do to lower increasing healthcare costs, second only to keeping the nation safe, according to a recent Reuters/Ipsos poll.

That’s due in part to the sticker-shock some newly-insured people felt when using health plans purchased on Affordable Care Act health insurance exchanges. One-halProfile of HSA users HelloWalletf of people enrolled in health plans sold on exchanges via were exposed to costs not covered by out-of-network providers. There is a growing prevalence of such so-called narrow network health plans. This increases the probability of a consumer bearing catastrophic out-of-network medical costs, a risk for debt and potential personal bankruptcy.


Save more for health care, for “now” and for “later”

In the immediate term, health savings accounts can bolster financial wellness through tax-advantaged savings, which we covered in this blog in Going Frugal For Healthcare With HSAs. For all the benefits that HSAs bring to an individual’s financial portfolio, the accounts are sorely under-used, as HelloWallet’s research found in July 2015. In their words, “We do see a worryingly large number of account holders in our sample using their HSAs in suboptimal ways.” The opportunity cost for the consumer is not managing the risk to being vulnerable in case an (expensive) medical emergency ensues; reducing tax benefits; and, limiting one’s ability to accrue a large HSA balance over the course of one’s career – an important hedge for when one is older and more at-risk for serious health conditions that can prove costly.

To appreciate the implications of consumers’ under-use of HSAs, note the 3 ways tax treatment advantages them: HSA users benefit from tax-free contributions, tax-free withdrawals on health care expenses, and tax-free gains if funds are invested. But in reality, only 5% of account holders contributed the maximum amount allowed by the IRS to their HSAs ($3250 for single coverage, and $6,500 for family coverage in 2013); and, only 4% of account holders eligible to invest their HSA balances chose to invest them, HelloWallet found.

Those people who contribute the maximum allowable amount to their HSAs tend to have dependents, be male (69% compared to 55% female), earn over $100,000 (67% of households versus 39%), and have at least a BA degree, based on HelloWallet’s study.

There’s a direct relationship between consumers’ cost of health insurance “today” and how much people put aside for health care “tomorrow.” In their aptly titled study, “Help Wanted? Employees and Financial Wellness Programs,” LIMRA learned from research with health consumers who receive benefits in the workplace. This is part of an overall trend of increasing financial stress among workers: between a quarter and half of full-time employees report high levels of financial stress, the LIMRA survey found. People with the greatest levels of financial stress spend the most time thinking about their health insurance and the least amount of time on other benefits.
LIMRA - 6 in 10 workers cost of health insurance limits retirement savings





People who make, and stick to, financial resolutions in the New Year feel greater financial wellness than those who do not give themselves annual financial goals. While most people will make a New Year’s resolution to take off a few pounds on January 1st, adding financial fitness to the classic “diet and exercise” resolution list will bolster overall health and wellness.