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Inflation, Retirement Concerns Weigh Heavily on Business Owners

Industry Trends and Research

While it may come as no surprise given the current economic environment, two new studies find that small- and mid-size business owners have major concerns about inflation, higher taxes, as well as their own personal financial security.

Not all was bad, however. Despite recent bank failures and concerns about the stability of the economy, businesses report high levels of growth. According to the latest Principal Financial Well-Being Index, more businesses are currently growing compared to this time last year (62% in March 2023 vs. 54% in March 2022). 

Businesses also anticipate continued growth, with 76% expecting their financials to improve within the next year. That sentiment remains strong when looking across employers of different sizes. Over two-thirds of small businesses (69%) (defined as businesses with two to 499 employees) and 86% of large businesses (defined as businesses with 500 – 10,000 employees) expect their financials to improve within the next year.

“Businesses continue to navigate roadblocks, including inflation, a challenging labor market, and most recently bank failures, seemingly with agility,” says Amy Friedrich, president of Benefits and Protection at Principal. “They have shown steady growth through recent events and are using the muscles they’ve built to navigate and quickly respond to the uncertainties coming their way.”

Financial Security Concerns

However, even as businesses are optimistic about their future economic outlook, their employees are anxious about their own finances in the next six months.

Amid concerns about continued market volatility, employees ranked reaching or maintaining personal financial security — defined as having control over regular expenses and enough financial freedom to enjoy life — as their second concern, behind inflation.

As such, employers recognize the need to support their employees during uncertain economic times. Many agree that employers should care about their employees’ overall financial security (84%). Most employers (90%) and employees (83%) also agree that workplace benefits are an important tool to help support employees’ personal finances. Employees identified benefits such as healthcare, retirement, and paid time off as the most important to help reach financial security.

“There’s a need to better educate employees with tailored, relevant information to help them achieve greater financial security,” adds Friedrich. “Employers are well positioned as a trusted, accessible resource to help employees achieve greater financial security.”

Small Business Owners’ Stress

Meanwhile, according to the Lincoln Financial Group’s Consumer Sentiment Tracker, small business owners have big personal finance concerns, significantly more so as compared to those who don’t own a business. 

In this study, small business owners’ top-cited personal finance concern is inflation, with 68% saying so. In addition, 62% of small business owners say that finances are a “major factor” or the “biggest source” of their stress versus 47% of those who do not own their own business. In fact, small business owners were three times more likely to say finances are their biggest source of stress compared to work/career or personal relationships.

Specifically, respondents who own small businesses — versus those who do not — are most concerned about:

  • Having enough income in retirement (65% vs. 48%)
  • The impact of taxes on retirement savings and investments (56% vs. 38%)
  • Paying for long-term care expenses for themselves or a family member (54% vs. 42%)
  • Ensuring dependents will be financially secure in the event of their premature death (51% vs. 41%)

“Small business ownership comes with a great deal of responsibility — not only for the business and its employees, but also for the owner and their family,” notes David Berkowitz, President of Lincoln Financial Network, the wealth management arm of Lincoln Financial Group. “Our research shows that many people who own their own business may not be prepared with the right financial products and solutions to help them feel confident about their financial future.” As such, Berkowitz suggests that small business owners may want to consider meeting with a financial professional to create a holistic financial plan.

This latest wave of Lincoln’s Consumer Sentiment Tracker was collected in March 2023 from a total of 1,004 U.S. adults, including 93 individuals who own their own business.

The latest wave of the Principal Financial Well-Being Index was conducted online by Dynata from Feb. 2–7, 2023, with a total of 500 business owners, decision makers and business leader participants and a total of 200 employee participants.