Just as President Barack Obama took a reassuring tone in the State of the Union address, there are reasons for optimism when it comes to our personal finances.
The stock market has come back, companies are starting to hire again and economists are increasingly upbeat about the future. But unemployment remains stuck at more than 9 percent, home prices are falling and the pace of foreclosures is accelerating.
It's hard to see a return any time soon to the level of financial comfort many enjoyed before the tough times began.
"We dug ourselves a very deep hole," says Mark Zandi, chief economist at Moody's Analytics. "I think it's going to take a full five years to recover in most areas: unemployment, wages, personal wealth and our collective psyche."
Whether you are upbeat about your financial situation likely depends on not just your job security and income level, but also on how much you have invested in the stock market. That's because its steady climb over the last two years has boosted retirement accounts and is helping to restore investor confidence.
Investors who stayed with stocks are in significantly better financial shape. But only about half of all households have money in the stock market, and many of those shifted their money into bonds. That leaves millions still scrambling.
One positive dividend from the hard times: Many have learned to be more conservative in their money habits.
"It's clear the new normal involves a greater amount of consumer restraint than we've seen for nearly two decades," says Manisha Thakor, a personal finance author and founder of the Women's Financial Literacy Initiative.
Here's a look at where our personal finances stand in several key areas:
Savings
The good: The personal savings rate — the amount of disposable income unspent — stands at 5.3 percent. Although that's a far cry from the 10 percent saved in 1985, it's a vast improvement from 2006 and 2007, when the rate turned negative for the first time since the Great Depression.
The bad: Any further increase in the savings rate could stall the recovery, as consumer spending accounts for about 70 percent of the economy. It's called the "paradox of thrift": Saving money is good for individuals but can be bad for the overall economy if everyone stops spending.
The outlook: The savings rate is likely to decline as the employment and economic outlooks brighten, but not dramatically. People won't quickly revert to the carefree spending of the boom years.
Debt
The good: Debt is down. Households on average owe about $43,000. That accounts for 122 percent of disposable income, down from a peak of 135 percent in late 2007, according to the most recent data from the Federal Reserve.
Credit card debt has decreased every month since August 2008. This reflects consumers paying down balances as well as card companies tightening lending standards and cutting available credit. Auto loans are reviving, helping auto sales rise 11 percent to 11.6 million in 2010.
The bad: Tightened lending standards means it's still difficult for many people to borrow money. And auto sales are still far below the peak of 17 million units in 2005.
The outlook: Credit card issuers are expected to start mailing out more offers this year as the economy improves, according to Bill Hardekopf, CEO of LowCards.com. But consumers with average or poor credit scores will still have difficulty getting approved.
Home sales and mortgages
The good: Good news is relative in this category. The bottom finally seems near for home prices that have been falling since 2006.
In December, the decline in the median price of a pre-owned home slowed to 1 percent from a year earlier. That's down to $168,000, according to the National Association of Realtors.
The bad: Historically low mortgage rates didn't help in 2010. Sales of pre-owned homes declined to a 13-year low and new sales totaled just 321,000, down 14 percent from 2009.
Five million borrowers are at least two months behind on their mortgages. They're expected to miss more payments because of job losses as well as failure to keep up with loans that exceed the value of their homes.
The outlook: Home prices are expected to fall another 5 percent before starting a recovery in 2012. But economists say it will be years before the housing market finally recovers because of the oversupply of homes.
Foreclosures are expected to reach 1.2 million this year, exceeding last year's 1 million, according to RealtyTrac Inc. "2011 is going to be the peak," Rick Sharga, a senior vice president at the company, said earlier this month.
Retirement and investments
The good: The stock market has roared back. The Standard & Poor's 500 index is up a remarkable 92 percent since bottoming on March 9, 2009. As a result, 88 percent of 401(k) account holders now have larger balances than at the market peak, according to the Employee Benefit Research Institute — thanks partly to their continuing contributions.
The bad: Retirement security has been compromised for millions. Many pulled out of stocks only to earn minimal returns on cash investments. Still more investors approaching retirement remain below where they were three years ago. The S&P 500 is 18 percent below its peak of 1,565 on Oct. 9, 2007.
The outlook: The stock market is unlikely to keep up its recent pace. Yet, investors who haven't returned to the market may want to reassess their risk tolerance. The likelihood of rising interest rates means the returns of their bond holdings and cash accounts may decline.
For those who are nearing retirement and need to boost their financial security, there are a handful of basic options: spend less, save more, delay accessing Social Security and retirement accounts, and work longer.
Jobs
The good: After rising to 10 percent, unemployment may have hit its peak. The number of applications for jobless benefits has declined in the past four months.
The bad: The job market remains weak. The unemployment rate has been over 9 percent for 20 straight months and will probably stay near that figure for the rest of the year. The number of private-sector jobs is still more than 7 million below the peak in December 2007.
The outlook: Some economists predict that employers will add twice as many jobs this year as the 1.1 million created in 2010.
Wealth
The good: Average household wealth increased to about $425,000 in the third quarter of 2010, up 8 percent from its early 2009 bottom. That includes the value of assets such as homes and stocks, minus debts such as mortgages and credit cards.
The bad: Because so much of personal net worth is tied up in a home, that figure is still 23 percent below the peak of almost $554,000 five years ago.
The outlook: It will take greatly improved housing and job markets to put people's personal finances in tiptop shape. A dramatic increase is not imminent in either. So far, a strong stock market has restored equilibrium. But it has also widened the gap between the haves and the have-nots.
Wall Street is back, in other words, but Main Street is not there yet, suggests Diane Swonk, chief economist at Mesirow Financial Inc., a Chicago-based financial services firm.
"The recession revealed the inequalities that were papered over with debt," she says, "a fact many of us knew but were afraid to admit."