Americans are still struggling with high inflation – the consumer price index was 6.4% in January – and even the wealthy are on the brink.
About 6 in 10 Americans were living paycheck to paycheck in November 2022, according to a report produced by business data platform PYMNTS and personal loans website LendingClub.
And even those earning six-figure incomes are feeling the financial pressure of inflation.
About 47% of Americans who earn more than $100,000 were also living paycheck to paycheck, up 4% from the previous month.
There are financial consequences ahead for the millions of Americans who barely have enough money to meet their basic expenses.
Purchasing power decreases
Although wages have increased in general, they have not increased fast enough to keep up with inflation according to a report last year from the Federal Reserve Bank of Dallas.
For the majority of employed workers, the median drop in real wages taking into account inflation is more than 8.5% – the largest wage drop in 25 years, the researchers said. If you are one of them, it means that your purchasing power is greatly eroded.
More than half of respondents to the PYMNTS study noted increases in their monthly bills, and many said it impacted their ability to saving for short-term goals.
Credit card debt is increasing
As Americans struggle to cope with soaring consumer goods prices, many are turning to credit card to close the gap.
Credit card balances soared by $38 billion in the third quarter of 2022, the Federal Reserve Bank of New York reported in November. This could continue to increase as the paycheck lifestyle becomes more prevalent.
The PYMNTS study also indicates that 24% of those who live paycheck to paycheck cite paying off debt as their most important long-term financial goal.
Learn more: Here is how much the average 60-year-old American has retirement savings — how does your nest egg compare?
The federal funds rate was hit by another hike by the central bank in mid-December, which means interest rates on your outstanding credit card balances are also rising.
According to most recent data according to LendingTree, the average US credit card interest rate rose to 23.39% from 22.91% the previous month.
Savings are dwindling
Many consumers can barely make ends meet – let alone have room at the end of the month to fill their savings accounts.
The most recent Federal Reserve Bank of St. Louis data shows that the personal savings rate in the United States fell to 2.4% in November, compared to 7.1% at the same time last year. The rate refers to personal savings as a percentage of income left over after paying taxes and spending money.
And in life insurance company New York Life’s Wealth Watch Survey, respondents said they were dipping into their savings just to cover basic daily expenses — withdrawing an average of $616.73.
Many Americans also draw on their retirement money to meet unforeseen expenses.
One in five Americans have dipped into 401(k)s or IRAs to cover an emergency expense, according to a investigation by New York Sports Day.
Americans who regularly deplete their cash reserves to offset the effects of inflation are becoming a major concern as experts predict a recession could hit in 2023.
Experts like Suze Orman say it’s important to have emergency fund spared in the event of an unforeseen financial crisis, such as job loss, pay cut or even car problems.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.