Out With the Old, In With the New: Financial Implications for 2022

By Barbara O’Neill, Ph.D., CFP®, boneill@njaes.rutgers.edu

Calendar displaying January 2022
Photo: Towfiqu Barbhuiya | Pexels

Last month, the Military Families Learning Network held its annual Personal Finance Year in Review webinar. Dozens of 2021 events and trends were discussed along with practice implications for Personal Financial Managers (PFMs) and other professionals who serve military families.

Below is a brief summary of ten events and trends from 2021 and their implications for financial educators:

  1. Housing: Homeownership- The U.S. experienced a 15-year high in home-price growth, housing inventory at record lows, and record-high prices for existing homes. Military families moving during the pandemic may have been able to sell their houses easier than before, but then had difficulty securing a new home after a permanent change of station (PCS) move.
  2. Housing: Renting- Rental relief distribution was slow with delays in many areas. The final eviction moratorium ended with a Supreme Court decision. An 11.5% increase in rent was reported in August 2021. Rental costs exceeded Basic Allowance for Housing (BAH) in many areas, negatively impacting military family budgets. A temporary increase in BAH high-cost housing markets (fourth quarter 2021) provided some relief.
  3. Income and Jobs– 2021 saw worker shortages for several reasons (fear of COVID, child care needs, stimulus), a tight labor market resulting in higher pay for some workers, and the so-called “Great Resignation.” These trends affected military spouse employment and household income for dual-income military households.
  4. Supply Chain Shortages- There were product manufacturing delays, shortages of shipping containers and laborers to offload cargo, and a “chip crisis” affecting cars, appliances, and other items with electronic parts. Military families were affected by resulting higher prices and lack of availability of products and raw materials.
  5. Inflation- There was a 6.8% annual increase in the CPI-U metric for inflation for the year ended in November 2021. This was the largest inflation increase in 39 years. Prices for energy and used cars were big factors and inflation essentially erased low-wage workers’ wage gains. Inflation disproportionately hurts lower-income households. A 5.9% cost-of-living adjustment (COLA) for 2022 Social Security and military retiree benefits resulted showing that inflation cuts both ways: increased income from COLAs and decreased purchasing power from higher costs.
  6. Vehicles– Average new vehicle prices topped $40,000 in January 2021 and continued to rise. Many sold for more than sticker prices. There were also record prices for pre-owned vehicles. Two practice implications are including current economic conditions in briefings and encouraging clients to “wait it [current conditions] out” if they can.
  7. Fraud– The Federal Trade Commission (FTC) reported in 2021 that imposter scams were the most common fraud. This includes false pretexting and romance scams. There were also scams related to COVID-19 (e.g., fake tests, vaccines, and charities). Military-serving professionals can teach “red flag” warning signs of fraud (e.g., requests to pay with gift cards) and how to report fraud through proper channels (e.g., FTC, IRS) if they are affected.
  8. Income Taxes– Last year, the 2020 tax filing deadline was extended to May 17, 2021. Income-eligible parents received monthly advance child tax credit payments from July to December 2021 and there was also a charitable donation tax write-off for non-itemizing taxpayers. These two events will affect tax returns filed in 2022. Military taxpayers with tax questions should consider contacting the MilTax service on MilitaryOneSource.com or a local VITA program with tax questions.
  9. Investing- During 2021, inflation fears boosted sales of inflation-indexed TIPS (Treasury Inflation-Protected Securities) and Series I bonds, which are paying 7.12% through April 2022. Other trends were meme stock volatility and increased interest in cryptocurrency and ESG (environmental, social, and governance) investing. The Dow Jones Industrial Average celebrated its 125th anniversary (1896-2021) and gained 18.7% during 2021. Trends like these can inform financial education programs.
  10. Retirement Planning- COVID-19 triggered a “retirement rethink” and a “life is too short” mentality, especially among affluent Americans. In 2021, there was also increased interest in state-run auto-IRAs for small business employees that do not have access to a 401(k)-type plan. The latter trend is good for military spouses seeking tax-advantaged retirement savings.

In summary, many impactful personal finance events occurred during 2021. To learn more, review the webinar online reference list.