If there’s one thing that’s certain about 2019, it’s that the year ahead will be filled with a great deal of uncertainty — at least on the economic front.
Trend experts and personal finance experts alike say the country’s current, polarized political climate, including the record-breaking government shutdown, has a lot to do with that, and is setting the stage for a year that no one can truly predict.
“At the moment, we are living in this world of unparalleled polarization,” said trend expert Daniel Levine, director of the trends consultancy firm the Avant-Guide Institute.
“Those who align themselves with the administration in Washington seem to be optimistic about what’s happening economically. And those who don’t, see the economy taking a downward turn.”
“In today’s political climate, conditions can change quickly and unpredictably,” added Levine. “Which could further impact people’s bottom line.”
Politics are just one of the factors poised to impact the consumer wallet in 2019. Thinner tax refunds, changes in the way credit scores are calculated, interest hikes from the Federal Reserve, and an increase in the minimum wage in 19 states are additional issues likely to affect Americans in the year ahead.
Thinner Tax Refunds
The various impacts of the Tax Cuts and Jobs Act of 2017 have yet to be fully felt or understood. By many accounts, the true test will come as 2018 taxes are filed.
However, there have already been rumblings about taxpayers walking away with either smaller tax refunds this year or owing the IRS money because of the new tax law, which ushered in a variety of changes, including slashing individual income tax rates, eliminating personal exemptions, and nearly doubling the standard deduction.
Toward the end of 2018, a flurry of news articles warned taxpayers to check their withholdings to avoid a surprise tax bill.
“When the Tax Cuts and Jobs Act was implemented at the start of 2018, the IRS issued new withholding guidelines, but there’s fear that they may have over-compensated for the effect of tax reform on many Americans,” said certified financial planner Matthew Frankel of The Ascent. “In recent years, the average tax refund has been nearly $3,000, but that’s not likely to be the case this year.”
“We’ll know more once tax season is underway. It’s still unclear who is going to get a higher refund and who is going to owe more,” Frankel added. “Tax reform is not well understood by many Americans, so that will be the real x-factor this year.”
While many taxpayers may not see it this way, smaller refunds are a good thing, Frankel argues.
“If you get a big tax refund, it means you essentially gave the U.S. government an interest-free loan for over a year,” Frankel continued. “A smaller refund means that you got more of the money you were entitled to when you earned it.”
If your primary goal is to get a big check from the government each spring, you can always adjust withholdings going forward to help increase the amount of money you get back from Uncle Sam next year. You would be better served, however, to take that money in your paycheck each week and put it into a high-yield savings account, rather than loaning it to the government.
“If you have an issue with saving diligently, if you’re spender, it’s not a bad idea to increase your withholdings. Doing that is not as bad as blowing the money. But with interest rates going up, a high-yield savings account is your best bet,” said Frankel.
UltraFICO Scores Are Coming
There’s been much buzz about the launch this year of a new credit scoring system known as the UltraFICO score.
Personal finance experts say the new scores, which allow consumers to use information from their checking, savings, or money market account history to supplement credit report data, are both good and bad news.
The UltraFICO score takes into consideration such factors as how much you have in savings, how long accounts have been open, and how active the accounts are, in order to boost your overall credit score — which may help some people gain access to credit who had previously been denied.
Having more credit at your disposal, however, isn’t always a good thing.
“Let’s say someone has a credit score of 670 and they need a score of 700 to get approved for something. The consumer can opt-in to have their score run as an UltraFICO score, which takes into consideration their past two years of banking activity,” explained Beverly Harzog, a consumer finance analyst and credit card expert at U.S. News & World Report.
“I worry that debt is going to go up more now, because more people will have access to credit,” Harzog added. “Some people can handle having increased access. I know it will help some folks, but it also might give people access who aren’t ready.”
Interest Rate Increases
The Federal Reserve is expected to raise interest rates about two times this year. Each time the federal funds rate goes up, it triggers interest hikes on such things as credit cards, home equity lines of credit, and adjustable-rate mortgages.
While just two rate increases is less drastic than the four that were implemented in 2018, the Fed has indicated that it intends to begin responding in real time to whatever course the economy takes in the year ahead.
“If the rates go up, the end result is that the prime rate on credit cards go up, and then the APR goes up,” said Harzog. “For those in debt, that’s huge. That’s one of the main things on my radar for 2019.”
If there is one silver lining to the Fed’s projected rate increases however, it is that interest on savings accounts also go up, said Harzog.
Minimum Wage Increases
In one of the good-news economic stories of 2019, workers in 19 states across the country got a minimum wage increase on January 1.
That’s due to a variety of factors, including legislative efforts, ballot measures, and adjustments tied to inflation. About 5.2 million workers stand to be impacted, according to the Economic Policy Institute.
The increases, ranging from a five-cent inflation adjustment in Alaska to a $2 per hour increase in New York City, will translate into approximately $5.3 billion in increased wages over the course of 2019.
Year-round workers receiving the pay bump will see their annual pay rise anywhere from $90 to $1,300.
“This is great news for residents of those states, but this is also likely to leave lower-paid workers in the other states behind,” said Frankel. “In other words, once these new minimum wage hikes go into effect, the difference between lower-paid workers among the states will never have been higher.”
In Columbia, S.C., where Frankel lives, the minimum wage is $7.25 and has remained that low for as much as a decade, he said.
“The minimum wage increase is definitely good news for those living in the states that are doing it, but I’d like to see everyone get on board with that,” added Frankel. “I understand the argument that minimum wage is supposed to just be a starting point, but at the same time there are people who make their living on minimum wage.”
Mia Taylor is an award-winning journalist with more than two decades of experience. She has worked for some of the nation’s best-known news organizations, including the Atlanta Journal-Constitution and the San Diego Union-Tribune.
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