Spending, Saving And Debt Trends – Forbes Advisor – Go Health Pro

The financial landscape in 2025 is shaping up to be anything but predictable. With shifting economic policies, lingering inflation pressures and consumer debt reaching new highs, the question isn’t just whether Americans can stretch their dollars—it’s how far those dollars will actually go.

To unpack the economic forces shaping this year and what they mean for your financial security, we spoke with experts on everything from interest rates to household budgets. Their insights reveal the challenges ahead—and the smartest money moves you can make to navigate them.

The Paycheck Reality Check: Wages vs. Spending Power

Americans are making more money compared to previous years—but don’t get too excited.

In the last quarter of 2024, total compensation for U.S. workers rose 3.8% over the year, while inflation stood at 2.9%. This means wages and benefits are outpacing inflation, giving workers slightly more buying power. However, the gap is narrowing as wage growth slows from earlier highs. While this trend helps control inflation, it also means paychecks aren’t stretching much further than before, keeping household budgets tight.

“Over the past three years, trends in unemployment and wage growth have notably impacted the spending power of Americans as we approach 2025,” says Chad Harmer, senior financial planner at Harmer Wealth Management.

While recent unemployment data suggests potential economic stability, many Americans still feel financial strain—particularly when it comes to housing. According to ATTOM data, both owning and renting now consume 25% to 60% of wages in most U.S. markets.

Home prices have risen faster than rents in 66% of U.S. counties, according to ATTOM, making homeownership the better long-term bet—if you can scrape together a hefty down payment. The average down payment climbed to 14.5% in the third quarter of 2024, with the median buyer coughing up $30,300 just to get in the real estate game.

For many, rising home prices and mortgage rates are stretching budgets and limiting financial flexibility.

According to the Mortgage Bankers Association, mortgage applications jumped 18.6% in the past year, but that surge was mostly driven by refinances (up 16.8%), not new purchases, which barely moved. Government-backed loans, like FHA mortgages (up 31.1%), are seeing more action, a sign that first-time buyers are eager to get into the market and are exploring all of their options.

Meanwhile, adjustable-rate mortgage (ARM) applications fell 4.8%, suggesting borrowers aren’t willing to bet on future rate drops.

Soaring housing costs aren’t just stretching budgets—they’re reshaping financial priorities, forcing Americans to delay major life decisions like buying a house while also grappling with more debt, says Harmer.

“Concerns regarding inflation significantly influence financial behavior,” he points out. “Many households are balancing debt repayment with savings accumulation to navigate market volatility.”

The Great Debt Reckoning: Credit Cards Are on Fire

Consumers are drowning in debt, and the life raft is getting pricier.

Consumer debt is at record highs, and credit card APRs are sitting north of 22%—meaning carrying a balance is more expensive than ever.

Total household debt has swelled to $17.94 trillion, with credit card balances hitting $1.17 trillion.

Meanwhile, household spending is slowing, but it’s still running hotter than pre-pandemic levels.

The median year-over-year increase in spending dropped to 4.6% in December, with the biggest pullback among lower-income and non-college-educated households. Consumers are splurging on electronics and cars, but they’re skimping on home repairs—hitting pandemic-era lows—and vacations.

With sky-high interest rates, keeping credit card debt is a losing game. Say you have a $5,000 balance on a card charging 22% interest—over a year, that debt balloons by $1,100 if left unpaid.

By contrast, putting the same $5,000 in a high-yield savings account earning 4.5% would net just $225 in interest.

“There are no investments I can make that will provide you with an easy return of 22%,” says E. Keith Wirtz, CFA, vice president and chief investment officer at Union Savings Bank. “Attack your credit card balances.” Paying them off is a guaranteed win.

Saving or Just Surviving? The American Dilemma

The American savings account has gone from fat to flat, and the fallout can be seen everywhere.

The U.S. personal savings rate has been on a rollercoaster over the past decade, swinging from normalcy to pandemic-induced stockpiling and back to reckless spending. For most of the 2010s, Americans saved 6% to 8% of their income—nothing spectacular, but enough to keep the lights on.

Then came 2020, when fear, nationwide lockdowns and government stimulus sent the rate skyrocketing to 32%, a once-in-a-lifetime spike. That hoard of cash didn’t last. By 2022, savings had collapsed below pre-pandemic levels, bottoming out around 3% to 4%, as inflation, debt and the cost of simply existing drained whatever cushion people had left.

Now, with savings near historic lows, Americans are burning through cash faster than ever, betting that tomorrow’s paycheck will somehow keep up with today’s bills. Many are even dipping into retirement savings, a sign of growing financial strain.

“I have seen two trends regarding 401(k) hardship withdrawals,” says Wirtz. “The number of withdrawals has ticked higher, but the average request amounts have ticked lower. This suggests to me that there are stress signs that are visible but not alarming.”

To stay ahead of mounting financial pressures, Wirtz urges consumers to take a disciplined approach to their money. “Arrange your financial priorities like a cascading waterfall,” he advises. “The credit card paydown bucket first, the rainy day bucket second, the 401(k) bucket third, and the investment account last.”

With rising debt and economic uncertainty, financial experts are encouraging consumers to prioritize high-interest debt repayment and emergency savings before taking on more financial risk. The warning signs aren’t flashing red yet—but they’re getting harder to ignore.

Experts Offer 5 Tips for Tackling Finances in 2025

2025 is shaping up to be a year of recalibration. Americans will be more cautious, more strategic and more mindful of where their money goes. With rising debt and economic uncertainty, experts forecast that the focus will be on stability over excess.

#1: Rebalance Your Investments

Stock market gains over the past two years may have left your portfolio overexposed to stocks. “Consider rebalancing your portfolio back to your long-term targets,” says Wirtz, by selling stocks while prices are high and reallocating funds to reduce risk.

#2: Prioritize Debt Over Low-Yield Savings

If your debt carries a higher interest rate than your savings account, it’s smarter to pay down debt first, says John Frank, CEO of Third Road Management. Credit cards, loans, and lines of credit often charge more in interest than what you’ll earn in a savings account, making debt repayment a guaranteed return on your money.

#3: Think Before You Swipe

“Don’t bite off more than you can chew,” warns Frank. The thrill of an impulse purchase fades fast, but the stress of high-interest debt lingers. If a purchase today means financial anxiety tomorrow, it’s not worth it.

#4: Follow the 10-10-80 Rule

Live below your means by allocating 80% of your income to essentials like rent or mortgage, food and entertainment, 10% to savings or investments, and 10% to charitable giving, suggests Frank. Sticking to this system keeps finances balanced and avoids lifestyle inflation.

#5: Set It and Forget It

Automate your savings and bill payments to stay on track, avoid late fees, and build financial consistency, advises Stacey Black, lead financial educator at BECU. Automating ensures your savings grow without requiring constant effort.