A December survey from the New York Federal Reserve shows increasing American optimism about household finances.

The percentage of respondents expecting their financial situations to improve the next year surged to 37.6%, the highest level since early 2020, just before the Covid-19 pandemic. This is an 8-percentage-point jump from October and reflects growing confidence in the economy.

In addition, fewer households expect their financial situation to worsen. Only 20.7% of respondents said they expected a decline in their finances, which marks a nearly 2% month-to-month drop, and the lowest level since May 2021.

Analysts link the improvement to the outcome of the Nov. 5 presidential election. Polls suggest many voters saw President Donald Trump’s ability to handle the economy as a deciding factor. In the runup to the election, the overall economy showed solid growth throughout 2024.

Despite the upbeat outlook, inflation expectations are still a concern. The survey shows inflation expectations have increased slightly for the next one, three, and five years, at 3%, 2.6%, and 2.9%, respectively – above the Fed’s 2% target. While the Fed lowered its interest rate for the third time in four months in December, consumers are cautious.

Government debt projections have also improved, with the median expectation for growth in government debt decreasing to 6.2%. This marks a significant drop of 2.3% from October and the lowest level since February 2020.

For those nearing retirement age, new legislation passed under President Joe Biden's administration, allows employees "supersize" their catch-up contributions to 401(k)s and similar workplace plans in 2025 - beyond the maximum for other savers 50 and older.

The new catch-up contribution limit for people ages 60 to 63 will rise to $11,250 in 2025, a step up from the $7,500 for employees ages 50 to 59 or 64 and older. That’s on top of the $23,500 maximum in 2025 for savers younger than 50, bringing the total allowable contribution for workers 60 to 63 to $34,750 this year.