Some are coping by adding to their incomes
If you are finding it a lot tougher to pay your monthly bills these days, you are not alone. Wage increases simply are not keeping pace with the rising cost of living.Read More »
Eating into wallets
The impact of inflation is eating into the wallets of all Americans, says Anuj Nayar, financial health officer at digital marketplace LendingClub. As the Federal Reserve strives to curb inflation, the cost of debt is being driven higher, he adds.
The result is that near record numbers of American are living paycheck to paycheck.
The number of Americans who find it difficult to meet all their monthly bills is close to the number reached at the height of the pandemic, Nayar notes. The causes, however, are different than they were in 2020.
Sharp jump in a year
The new reality is reflected in a study by LendingClub Bank, which shows a sharp jump in only a year in the number of U.S. consumers living paycheck to paycheck.
Some 9.3 million more Americans were living paycheck to paycheck at the end of 2022 than those who were doing so in 2021, according to the 18th edition of “Reality Check: Paycheck-to-Paycheck,” from LendingClub Bank.
The jump in those struggling to pay their bills meant that more than six in every 10 Americans were living paycheck to paycheck in December 2022, the study found.
Surprisingly, 8 million of those consumers living paycheck to paycheck earn more than $100,000 a year—a 9 percentage point increase from December 2021, the study finds.
These people have difficulty paying their monthly bills in spite of their higher earnings.
The number living paycheck to paycheck among middle-income and low-income consumers also is high, but it has remained more or less constant over the year—at least as a percentage of the total.
Will avoid large purchases
Almost all of those eking out a living every month report that inflation wiped out their wage increases in 2023.
As a result, many consumers are likely to avoid making large purchases in 2023 such as appliances and electronics.
The year might also see a falling interest in leisure travel.
Optimistic about the future
Although they are worried about the continuing impact of inflation, four out of 10 consumers living paycheck to paycheck are optimistic about their finances in 2023, the study found. The number is up 7 percentage points from July 2022.
They cite additional sources of income and job upgrades as two reasons that they are hopeful that their finances will improve in the year ahead.
If this perception proves true, it will hinder the Federal Reserve’s attempts to tamp down inflationary pressures, Nayar says.
Inflation is greatest fear
Many Americans, however, are pessimistic about the immediate future, believing that their situations will become worse in the year ahead. The reasons they cite are mostly inflation and economic uncertainty.
Nayar predicts that an increasing number of Americans are likely to identify themselves as living paycheck to paycheck until the economy recovers.
More than ever, it is essential for consumers to examine their spending and to build for themselves a cushion of savings so that they are prepared for the unexpected, Nayar suggests.
Another study, this one by real estate company Zillow, sheds light on another aspect of the financial squeeze facing many Americans.
It finds that it takes the incomes of almost four full-time workers earning the federal minimum wage to afford a typical two-bedroom rental.
Put another way, minimum wage workers need three roommates or four jobs to afford a two-bedroom rental.
Renters have been squeezed by record growth in rental rates, explains Zillow senior economist Nicole Bachaud. At the same time, incomes have failed to keep pace.
This squeeze is true for those who earn minimum wages, but is particularly true where the minimum wage has failed to increase for more than a decade, Bachaud adds.
More construction is needed at entry-level prices so that housing becomes more affordable everywhere.
Even in cities where the minimum wage is $15 an hour—more than twice the federal minimum—a single person working full time and earning the minimum wage cannot afford the rent on an average one-bedroom apartment, the Zillow survey finds.
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