What the Top Searched Finance Terms of 2023 Reveal About the State of Your Money
.jpg)
An eventful year in the finance world, 2023 brought a rollercoaster of highs and lows for the U.S. economy. From bank failures to the rise of artificial intelligence, the financial landscape underwent significant changes. Businesses dealt with inflation and insurance rate hikes. Investors saw both stock market recovery and bond market struggles, challenging traditional investment rules and causing doubts about achieving financial goals.
Investopedia has published its yearly list of most-searched terms of 2023, providing an insight into the minds of everyday Americans as they confronted the challenges of the year. The first six tell us a lot about the state of our personal and national economy.
1. American Dream
A surprising phrase to be found at the top of a list of financial terms, the American Dream symbolizes a better life for all, filled with opportunities and prosperity. However, the economic dynamics of 2023 made this dream unattainable for many Americans.
Investopedia’s editor-in-chief, Caleb Silver, gave his opinion on why this appeared at the top of the list in an interview with The Compound. “A lot of people came to terms with the fact that [the American Dream is] not real anymore or it's not real for them … I think that has a lot to do with this big spike we had in mortgage rates — housing became very expensive and very tight — and people were realizing for the first time they may never, ever be able to buy that house.” Indeed, the estimated lifetime cost for achieving the modern-day American Dream now stands at a significant $3,455,305.
2. Bank Failures
In 2023, the financial world was shaken by the failure of banks such as Silicon Valley Bank, Signature Bank, and First Republic. This led savers to question the safety of their money and seek a better understanding of the protections provided by the FDIC.
These incidents underscored the vulnerabilities to various risks such as credit, market, liquidity, and operational risks. Particularly notable were the challenges in managing interest rate risks and sector concentration risks, as seen in the heavy reliance on specific sectors like technology, raising important questions regarding regulatory oversight and policy implications. They serve as a reminder of the interconnected nature of the financial system and the importance of regulatory frameworks in ensuring the stability and health of the financial sector.
3. Artificial Intelligence
Throughout this year, artificial intelligence (AI) emerged as one of the most fascinating and controversial technologies of the year. It generated both excitement and fear, driving people to try to learn more about the opportunities it provides for automation and investment. In fact, Google’s Year in Search rated the search term “AI stocks to buy” as even more popular than “artificial intelligence” by itself, revealing a strong interest among investors.
AI is set to profoundly impact the finance industry in various ways. Financial institutions are significantly increasing their investment in AI, with spending expected to more than double to $97 billion by 2027. This surge is indicative of AI's growing importance in areas such as asset protection, market prediction, and addressing new risks like cybercrime and financial crises, according to the International Monetary Fund.
AI is not just about automation but also about enhancing customer experiences and decision-making. Financial services are leveraging AI for tasks like client onboarding, complying with anti-money laundering (AML) and know-your-customer (KYC) regulations, and even creating personalized portfolios based on client risk preferences. Additionally, AI's integration with Big Data could revolutionize customer insights, offering advantages beyond regulatory compliance and customer relationship improvements. The well-documented risks with AI—such as fraud detection and regulation—certainly still exist.
4. Certificate of Deposit
As interest rates rose due to the Federal Reserve's campaign, Certificates of Deposit (CDs) gained popularity. Savers searched to understand why they could be a better choice than traditional savings accounts and looked for banks that offered the highest yields.
It makes sense that more people would be looking into CDs during a year of uncertainty, as CDs are considered low-risk investments. They are federally insured up to a certain amount, which means the principal investment is secure even if the bank fails.
However, the certainty that CDs offer comes with a trade-off in terms of liquidity. Funds deposited in a CD are locked in for the term of the CD, and withdrawing funds early can incur penalties. This means that while CDs offer a secure, predictable return, they lack the flexibility of a savings account where funds can be accessed at any time. For individuals planning their personal finances, this necessitates a careful balance between the desire for higher, stable returns and the need for liquidity to meet unexpected expenses or take advantage of other investment opportunities.
5. Inverted Yield Curve
The U.S. Treasury market faced various disruptions in 2023, with an inverted yield curve being one of them. Although this situation raised concerns of a recession and a bear market, neither materialized. Google reports that searches for this term reached their peak in March, but continued throughout the year.
The inverted yield curve in the U.S. Treasury market in 2023, a historical indicator of potential recessions, necessitates cautious investment strategies for individual investors and small businesses. While not a definitive predictor of economic downturn, the inversion signals increased economic uncertainty, advising a shift towards more stable investments like fixed-income securities. This approach helps mitigate risk, providing steadier returns in uncertain economic conditions, though typically at lower rates compared to equities.
Given the historical pattern where equity markets often bottom out months after a recession starts, long-term investors should carefully consider their market entry or exit timings. Small businesses, in particular, may need to reassess their financial strategies, balancing the need for liquidity and growth potential against a potentially slowing economy. This period of heightened economic uncertainty underscores the importance of informed financial decision-making, with a focus on balancing risk mitigation and growth objectives.
6. Debt Ceiling
Threats of a government shutdown loomed once again as members of Congress struggled to reach agreements on funding the government. The governmental dysfunction caused government borrowing costs to rise and led to short-term market disruptions.
The debt ceiling crisis poses significant financial risks for small businesses and individuals. Small businesses, in particular, may face challenges such as restricted access to credit and a decline in consumer spending, impacting their profitability and ability to make strategic decisions. The volatility in financial markets can also make obtaining loans and other financing options more difficult. To mitigate these effects, small business owners are advised to build financial reserves, diversify their customer base, and stay informed about financial developments.
For the broader economy, approaching or breaching the debt ceiling could lead to serious disruptions in financial markets, affecting households and businesses alike. This situation can result in higher interest rates on various financial products, increasing the cost of borrowing. A breach of the debt ceiling could potentially reverse recent economic gains, leading to job losses, a decline in GDP, and higher unemployment rates. In the worst-case scenario, a prolonged default could trigger a severe recession, impacting consumer and business confidence, and leading to reduced consumption and investment.
Conclusion
The top searched finance terms of 2023, from the elusive American Dream to bank failures and the rise of Artificial Intelligence, collectively paint a picture of a populace grappling with financial instability and the rapid pace of technological change. These terms reflect a national economy in flux, where traditional pathways to prosperity are being reexamined amidst a backdrop of economic uncertainty and digital transformation. Concerns about bank stability and the implications of a fluctuating debt ceiling highlight the public's growing awareness of and need for financial security and stability. The interest in AI and Certificates of Deposit underscores a shift towards embracing new, potentially lucrative technologies, while also seeking safer, more predictable investment avenues. This blend of curiosity, caution, and adaptation in the face of economic and technological shifts suggests a proactive approach by individuals and businesses in navigating a complex financial landscape, ultimately striving for a sense of certainty in uncertain times.
Sources
Peterson Institute for International Economics
American Sustainable Business Network
This article was originally published in Certainty News.
Discover What Grows Wealth with Minimum Effort & Minimum Risk
