Inflation fears among America’s small businesses are rising again and their faith in the Fed is falling

The fight against inflation was going well for the Federal Reserve and economy for much of last year and into 2024, but one important demographic remained unconvinced about the progress being made in lowering pricing: small business owners.

Now, more influential parties are coming around to a view that small businesses have been stubborn in saying is closer to the on-the-ground truth: inflation isn’t coming down fast enough. On Wednesday, Federal Reserve Chair Jerome Powell conceded that after three months of disappointing data on inflation, there has been a “lack of further progress” this year. Market traders, who not long ago were in interest rate cut euphoria mode and forecasting up to six rate cuts by the Fed this year, are now more likely to see one or two cuts at most.

Disappointment over inflation is nothing new for small business owners, and their frustration over high prices is increasing again, according to the CNBC|SurveyMonkey Small Business Survey for Q2 2024.

One in four (24%) small business owners tell CNBC that they think inflation has reached a peak, down from 29% in the previous quarter, and back to where the economic sentiment reading was a year ago. The percentage of small business owners who expect inflation to rise from here is trending up as well — 75% this quarter, up from 69% in Q1.

“Small business owners are the engine of our economy, and the data shows they are still pessimistic about overcoming inflation,” Lara Belonogoff, senior director of brand management and research at SurveyMonkey, said in a statement upon the Q2 survey’s release.

This CNBC|SurveyMonkey online poll was conducted April 8-12, 2024 among a national sample of 2,130 self-identified small business owners ages 18 and up.

Despite a positive market reaction to Fed Chair Powell’s comments after the FOMC meeting on Wednesday — in the least, Powell all but ruled out another rate hike this year — small business confidence in the Fed has declined. Last quarter, a little over one-third (35%) of business owners said they had confidence in the Fed. That’s not fallen back to 31%, where it was in Q2 of last year.

“Inflation remains a top concern, clearly, for small businesses,” said U.S. Small Business Administration head Isabel Casillas Guzman in an interview with CNBC’s Kate Rogers at the virtual Small Business Playbook event on Thursday. “We’ve tried to make sure the SBA is more readily available to credit worthy borrowers out there. Half of businesses don’t get the capital they need fully, or at all.”

She suggested small business owners start with local SBA resource partners, local district offices, which can connect them with lenders on the ground, as well as starting with the SBA’s online Lender Match tool.

One finding over which small businesses are in line with a broader macro view is the overall state of the economy. Over one-quarter (27%) describe the economy as “excellent or good,” which has not trended lower even as inflation fears have picked back up. It’s also notably up from 21% in the year-ago quarterly survey. The economy’s performance helps explain why nearly three times as many business owners cite inflation as the biggest risk they face (37%) compared to the No. 2 threat, consumer demand, at 13%.

SBA Administrator Guzman cited the 17.2 million new business applications filed during the Biden administration as a sign of the economic optimism despite inflation. She pointed to the Biden legislation that is spurring government spending on infrastructure and clean energy, which are economic growth drivers. “These are all small business trades across those opportunities,” she said. “That’s the economic growth the president has been focused on.”

Increasingly, though, it’s also a fiscal policy-linked spending plan and rise in federal debt that economists are tying to sticky inflation.

The CNBC|SurveyMonkey Small Business Confidence Index was unmoved quarter-over-quarter, at 47 out of 100, and up one point from Q2 of last year.

Fed's Jerome Powell: Inflation remains too high and path forward is uncertain

The CNBC|SurveyMonkey data is consistent with other recent small business survey findings. Goldman Sachs’ 10,000 Small Businesses Voices survey released this week cited 71% of small business owners saying inflationary pressures have increased on their businesses over the past three months and 49% saying they’ve had to raise the prices. In the CNBC survey, 48% said they are raising prices.

Inflation will loom large in how America’s small business owners tilt in the presidential election.

Inflation is the No. 1 issue over which small business owners say they will vote, with 63% of survey respondents citing it, followed by economic growth at 61%.

Confidence in President Biden’s handling of the presidency — which is typically low in a small business demographic that skews conservative — remains underwater in the new survey, at 31%, down by two percentage points quarter over quarter. Among Republican small business owners taking the survey, 5% approve of the job Biden is doing. Among Democrats, 82% of small businesses approve of Biden, though pollsters say that approval ratings under 90% within one’s own party are a signal of dissatisfaction.

Biden has made some gains with his supporters, with the overall Small Business Confidence Index reading among this survey subset unchanged quarter over quarter at 61, and up from 55 in Q3 of 2023.

The CNBC survey found that in one area, small business owners who identify as either Republicans or Democrats do reach a rare point of consensus: both say that when it comes to government policy, they are getting slighted compared to large corporations.

The Goldman Sachs survey found that 55% of business owners are unhappy with the amount of focus small business issues get from candidates. Inflation, at 73%, was the issue cited most frequently.

Guzman said that the SBA has doubled the number of small-dollar loans, including to startups, as well as to women and people of color, who she noted are starting businesses at the highest rates. She also said more of the government loan volume is going into “rural banking deserts.”

And the total amount of government contracts going to small businesses has reached 28%, Guzman said, roughly $178 billion, according to the recent government scorecard. “We want more people to do business with the largest buyer in the world,” she said. 



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It may take $10 million to achieve ‘financial freedom,’ say ‘Earn Your Leisure’ hosts

Troy Millings, left, and Rashad Bilal, co-creators of Earn Your Leisure.

Source: Tyrell Davis

Rashad Bilal and Troy Millings are among a growing class of financial influencers who want to help people be smarter about money.

The duo — a former financial advisor and a teacher, respectively — launched the podcast “Earn Your Leisure” nearly five years ago with a mission to promote literacy around money and entrepreneurship.

About 1 in 7 people lost more than $10,000 in 2022 due to a lack of financial literacy, according to a study by the National Financial Educators Council.

“I realized there were certain things that weren’t taught inside schools — financial literacy and financial education being one of them,” Millings said of the idea to create Earn Your Leisure.

More from Personal Finance:
As mortgage rates hit 8%, home ‘affordability is incredibly difficult,’ economist says
Student loan borrowers reenter ‘a very messy system’
The 10-year Treasury tops key 5% level: Here’s what that means for you

Today, Earn Your Leisure has expanded to create multiple podcasts, host live events and offer an online educational platform, EYL University. It has 1.4 million Instagram followers and another 1.4 million YouTube subscribers. Its flagship podcast has an average 3 million downloads a month, said Bilal and Millings. It’s also developing a financial literacy curriculum for high schools.

CNBC interviewed the duo — who have been friends since childhood — to talk about personal finance and financial literacy in the U.S.

This interview has been edited and condensed for clarity.

‘Investing is not just for rich and wealthy people’

Greg Iacurci: You told CNBC last year that your “purpose is financial literacy and empowerment.” When it comes to financial literacy, what’s the No. 1 mistake you see people making with their finances?

Rashad Bilal: Not understanding the importance of investing, or [not] knowing how compound interest works.

For a long period of time, investing was something that people looked at more as a luxury, not a necessity, [thinking] if you’re able to invest then you’re in the top 1%, or you have to be wealthy to even consider that.

Investing is not just for rich and wealthy people. It’s for everybody. You can start with smaller balances and dollar-cost average.

Troy Millings: The relationship with money: People don’t understand what to do with it or how to save it. These are simple concepts we’re not taught. When we don’t know what to do, we do what we know, and that’s often spending outside our means. Mistakes are made because nobody is educated.

People may have heard that investing and compound interest are important but might not know why. Can you speak to that?

Bilal: The only way to really achieve financial freedom is if your money is growing without you working for the money. How to achieve that is through investing. One dollar will only be $1 if it’s saved in the bank. But $1 can become $2 if it’s invested.

Most people understand this without even fully realizing that they understand it because they have a retirement plan. The whole point of a retirement plan is investing. You put money into a 401(k), and that money gets invested with the expectation that when you’re 65, 70 years old you’ll have a nest egg you can draw from and live off of in retirement.

The only pathway to not working forever, to having money in abundance, is to find ways to make more money with the money you currently have.

What it takes to achieve financial freedom

Troy Millings, left, and Rashad Bilal, co-creators of Earn Your Leisure.

Source: Greenleaf Multimedia

You mentioned financial freedom. How much money does someone need to be financially free?

Bilal: I think everybody is different. I think it depends on where you live. But I would say, I think you have to be in the eight-figure-net-worth range if you live in suburban or metropolitan areas. I would say around that $10 million figure would provide some level of comfort if other aspects of your life are maintained.

And what is financial freedom?

Millings: I think it’s having enough financial resources to pay for your lifestyle, your living expenses, and also allows you money to invest.

It could differ. It could be in that eight-figure range. Or it could be seven figures. It’s really about having the financial resources to do what you want and invest and create generational wealth. It needs to be something that lasts for generations.

Earn Your Leisure co-founders on the importance of financial literacy

Some people might hear that — seven or eight figures — and think, “How is that possible for me?” Do you think it’s possible for most people?

Bilal: Most people probably aren’t going to make $10 million — I’m just being honest to the question you asked. We have to be honest.

But some people will. This is why we’re big on entrepreneurship, we’re big on investing. You might not be able to accumulate $10 million in your lifetime, but you might be able to accumulate $1 million or $1.5 million. That’s still better than being 70 years old with $20,000 in your bank account.

I think the aspiration towards a certain goal, you might not be able to actually obtain that goal, but if you fall short you’ll still probably be better [off] than you would have been if you had no aspiration and didn’t follow any rules or didn’t try to invest or start a business; you live off what you have. You won’t buy a $1 million home if you only have $1,000 in your bank account. Your life will still be better financially than if you didn’t follow the pathway towards the goal.

Making it ‘cool to be educated’ about money

For the person who’s just starting out investing, how would you suggest they go about it?

Millings: When you’re young, you want to be as aggressive as possible, and when you’re older, you want to get more conservative. Risk mitigation is a huge part of that. We always tell people to start with indexes — an entire index or entire [industry] sector in an exchange-traded fund. That keeps you from having the volatility of watching a stock either appreciate — where you might get some upside — or depreciate, where the risk on the downside is far greater. 

High school classes in financial literacy use real-world examples to teach budgeting

In a recent discussion with entrepreneur and musician Sean “Diddy” Combs, you mentioned that when he met you, he said you “make it cool to be educated.” How do you go about that?

Millings: We’re authentically ourselves, so there’s a natural relatability because people see themselves in us. When people talk about finance they try to make it a language that is upspoken to the masses. Our mission was to democratize it, to make it seem like something that can be very relatable and digestible. We show up the way we are, we wear sweatshirts, we wear hoodies. We represent everybody. It doesn’t feel like it’s only for the elite or it’s only for a select crowd.

It’s the same thing in the classroom: A student has to realize this is someone I can learn from and who I want to teach me. Our audience kind of feels that way when they look at us. We’re also very vocal that we’re learning as well. We don’t know everything, and we bring people on [the show] who can educate us.

‘Having money doesn’t alleviate the problems’

For your podcasts, you’ve interviewed several famous and wealthy people — pro athletes, musicians and entertainers, for example. Are there certain things about finance that seem just as confusing for the rich and famous as for the average person?

Bilal: Yeah, I think a lot of people don’t have a full understanding of finance. It doesn’t matter how much money you make. That’s a common misconception.

Having money doesn’t alleviate the problems, it just makes the problems even worse. Understanding money or having a good understanding of money isn’t something that’s correlated with how much money you have.

Financial literacy is something I think gets metastasized on the highest level. Those are the same issues that everybody else has, it’s just everybody else doesn’t have the opportunity to lose $30 million or invest $20 million into a bad investment and then it goes belly up. If given the opportunity they probably would, it’s just they don’t have it. It’s a bigger microscope on celebrities because they’re public figures.

Is that because wealthy people and celebrities have a capacity to overspend more than the average person?

Bilal: I think it’s not so much just a spending situation. That’s a common misconception also, that they go broke because they spend money lavishly. That’s one part of it. But another major part is they’re actually trying to do the right thing, they’re just misinformed.

You see a lot of people make bad decisions when it comes to investing. They’ll invest in things that might be Ponzi schemes, bad real estate deals, they’ll be led down a bad path when it comes to financial advisors or people they trust. They think they’re doing something productive with their money but they actually are losing money because the investments aren’t fully vetted, they don’t fully understand what they’re investing in.

So I think it’s a little more complicated than just spending habits. It all comes back to not having a basic level of understanding and education when it comes to money.

It seems there’s some relatability there for everyday people.

Bilal: For sure. Look at crypto, for example. If you look at [the cryptocurrency] dogecoin, a lot of people made misinformed decisions. They thought they were doing something productive. They didn’t go into it with the intention of losing money. In their brain it was like, ‘This is an opportunity to turn $5,000 into $20,000.’ And they potentially lost all of their money.

It’s the same thing [with celebrities]. It’s just played out on bigger levels.

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