13 Scary Financial Statistics And How To Help Avoid Becoming One

With its roots in an ancient pagan festival held to ward off evil spirits, Halloween and the weeks leading up to it mark the perfect time to sit around a roaring fire under a full moon sharing tales of terror with family and friends. Arguably, the best stories are those that include just enough truth to strike fear in the hearts of the bravest among us, like tales of the ominous “October surprise.”

Also referred to as the October effect, the tenth month of the year sees even the most courageous of economists and investment managers nervously checking over their shoulders. That’s because October is known for some of the scariest events the financial markets have ever experienced. These include the Bank Panic of 1907, which eventually led to the 1913 Federal Reserve Act that created the Federal Reserve System, the stock market crash of 1929, which heralded the Great Depression, and Black Monday on October 19, 1987, when the stock market fell more than 20% in a single day.

Trick or treat?

While these events all took place in the month of October, its reputation for producing the scariest financial statistics may actually be a bit overblown. In fact, October is actually known as a bear market killer, since it has historically heralded the end of more bear markets than the beginning.^* Yet, that doesn’t mean that there aren’t spooky tales of financial woe lurking around every corner. For those brave enough to read on, we’ve uncovered thirteen scary financial statistics and steps you can take to avoid becoming their next victim.

1. 56% of Americans can’t afford a $1,000 emergency expense from their savings account (Bankrate)
2. Only about two in three adults could pay a hypothetical $400 expense using cash or its equivalent. (Federal Reserve)
3. 24% of consumers have no savings set aside for emergencies. (Consumer Financial Protection Bureau)
4. $8,942 is the average credit card balance for U.S. households (WalletHub)
5. 56% of workers say they expect to have less than $500,000 saved for retirement, including 36% forecasting less than $250,000 in savings. (PlanSponsor)
6. Only 22% of Americans nearing retirement say they have enough money to retire, down from 26% in 2021. (PlanSponsor)
7. Only 23% have a written plan for retirement, while 40% have done some planning but don’t have a formal plan
8. 37% have not done any planning. (PlanSponsor)
9. 44% of retirees said their expenses in retirement are higher than expected (PlanSponsor)
10. 51% of American adults have delayed at least one important life decision in the last year for financial reasons, up 20% from a similar survey conducted in 2007. (CPA Practice Advisor)
11. The Consumer Price Index rose 8.3% over the last 12 months in August, not seasonally adjusted (NSA). In addition, the index for all items less food and energy increased 0.6 percent in August (SA); up 6.3 percent over the year (NSA). (U.S. Bureau of Labor Statistics)
12. 6.89% was the current average mortgage rate for a 30-year loan on October 6, 2022, the highest level since November 2008 (Bankrate)
13. The S&P 500 finished September down 25.2%. (Carson Group)

How can you avoid becoming the next victim of a scary financial statistic?

Start saving now. If you don’t have an emergency savings fund, establish one now. An emergency fund creates a safety net for managing unexpected expenses. It can help you avoid incurring high-interest credit card debt or dipping into long-term assets that may be impacted by market fluctuations in the event of a job loss, health crisis, expensive car repair or other unanticipated expense. Most financial professionals recommend that your emergency savings cover six months of current living expenses. However, even if you can only save a small amount each month, making savings a habit is more important than how much you initially set aside.

Maintain a budget. This is one of the most effective ways to find ways to reduce spending to save more. Even if you can only find an extra $5 a day, over the course of a year that adds up to $1,825 in savings. And you may even earn more on cash now thanks to rising interest rates. Your budget is also a critical tool for managing current debt and avoiding new debt. As you pay down existing debt, redirect those monthly payments to short and long-term savings.

Contribute to retirement savings. While inflation and high interest rates have made it harder for people to set money aside for short and long-term savings goals, saving for retirement is a critical building block for maintaining your lifestyle when you’re no longer working. The longer you wait to begin saving for retirement, the less money you may have when you’re ready to stop working. That’s important because Social Security only replaces about 40% of the average workers’ pre-retirement income in retirement. Even if you plan to work later in life to close the gap between what Social Security and a pension may provide (if you have one), circumstances outside of your control, such as an illness, injury or layoff could dictate a change in plans.

Fortunately, where your savings are concerned, time is always your friend. This is especially true when you save through a qualified retirement plan, such as a 401(k), 403(b), or individual retirement account (IRA), thanks to tax-deferred compounding. That means your retirement account investments have the potential to grow even faster than comparable taxable investments, since account earnings are not subject to taxes until they’re distributed, usually in retirement. Ideally, you want to optimize your savings potential by contributing the maximum amounts on an annual basis to any plans you’re eligible to participate in, including catch-up contributions, once you’re eligible.

Make a plan. A financial plan is your blueprint for building and managing wealth at every stage of life. As reported in PlanSponsor, 91% of people with a written retirement plan say it has been useful to them, with 33% saying it has been “critical” to putting them on a better path for retirement. That’s because a plan documents your goals and maps out a strategy that will support them through each stage of your life. It also allows you to make adjustments over time as your needs change, goals shift, and milestones are reached. A well-conceived plan can help you resist the urge to adjust your strategy based solely on current market conditions. Because it’s aligned with your short and long-term goals, it’s designed to help you remain on track, regardless of day-to-day market activity or changing economic conditions. That can go a long way when it comes to tamping down the fear and angst that volatility and uncertainty can create—especially in a year like this one.

Don’t fear the (market) reaper. According to Carson Group Chief Market Strategist Ryan Detrick, CMT, there’s no way to sugar coat things – 2022 has been a rough year. While bonds historically have done well when stocks were underperforming, that hasn’t been the case in 2022. The five previous times the S&P 500 lost 10% or more for the year, bonds (as measured by the Bloomberg U.S. Aggregate Bond Index) gained every time, up 7.7% on average. While that might not feel great, it’s important to remember that the stock market doesn’t care about what just happened, it only cares about what’s next.

“The good news is, once a bear market is down 25%, the returns going out can be quite strong, with the S&P 500 up nearly 23% on average a year later,” Detrick says. “Additionally, many lows took place soon after this milestone was hit, so a major low could be near.”

That makes it even more important to stick with your current investment strategy, assuming it’s aligned with your goals, timeframe and risk tolerance. You want to avoid selling at the bottom of a bear market, especially if stronger returns are likely in the near term. Selling at the bottom could greatly impact your investments for years to come. Many investors have found that out the hard way in the past. By moving out the market to avoid falling prices, they missed out on significant rallies as stocks eventually returned to new highs. Keep in mind, the fourth quarter is historically the best quarter of the year, with the S&P 500 up 4.1% on average and nearly 80% of the time. While past performance is not indicative of future results, we believe stronger returns could be quite likely in the weeks and months ahead.*

For the latest insights from industry experts on the markets, economy and your planning needs, be sure to visit our Resources Blog.

^*Carson Group, 7 Things to Know About The Historically Strong Fourth Quarter