Theis taking its toll on families, with three-quarters of middle-income Americans saying their earnings aren’t enough to pay for their cost of living, according to a recent survey.
In some ways, Americans with annual earnings of $30,000 to $100,000 are now under more financial pressure than they were at the start of the pandemic, Glenn J. Williams, CEO of Primerica, told CBS MoneyWatch. Primerica polled almost 1,400 people in that income bracket in early June about their financial views and habits, part of a study that it began at the start of the health crisis.
The financial strength of American households is key to the U.S. economy, given that consumer spending contributes two-thirds of GDP. But surging prices for everything from gasoline to groceries are eating away at family budgets, with the financial services firm finding that 7 in 10 middle-income consumers are cutting back on restaurants and take-out meals, while about the same share plan to skip upgrading their phones and other tech because of inflation.
“We did this at the start of the pandemic to track middle-income families, and there is an even higher level of concern about their finances than there was then, dealing with inflation and the fear of a recession,” Williams said.
In the “red zone”
Real wages are losing ground as inflation flares, eroding consumers’ purchasing power. The share of middle-income Americans who say their incomes aren’t keeping up with their cost of living has jumped 16 percentage points since December 2020, rising to 75% in June, Primerica found.
“We are kind of in the red zone with that question,” Williams noted. “That tells us the pressure is more intense now than it has been in the past.”
The top financial concern among those surveyed is inflation, followed by food and gas prices. Given those worries, it’s perhaps no surprise that almost 8 in 10 said they believe the U.S. will sink into a recession by year-end.
Turning to credit cards
To stay afloat, more middle-income Americans are relying on credit cards, Primerica found. About 29% of those surveyed said their credit card debt had increased in June, reflecting the highest share since the survey began, the company said.
“They are using credit cards to bridge the gap,” Williams said, noting that there is nothing inherently wrong with tapping credit cards to get through a tight period. “But the longer that goes on, the longer those balances bulk up. That creates a hurdle that can be difficult to overcome in the future.”
Other research is finding similar sentiments among consumers, with a new LendingTree survey finding that 43% of Americans expect to add to their debt in the next six months. The share was highest for parents with children under 18, with 58% expecting to take on debt in the second half of 2022.
The most common reason for adding debt: Paying for necessities, followed by emergencies and health care costs, LendingTree said.
There were some bright spots in the Primerica’s survey, Williams noted. For one, 61% said they have an emergency fund of at least $1,000 to cover unexpected expenses. That’s slightly higher than the 56% who had such a fund in December 2020.
Yet when asked about their ability to save for their future, 72% said it was “not so good” or “poor.” Even when things are tight, it’s useful to consider how to pare spending to save some money, either for an emergency fund, retirement savings or other long-term goals, Williams said.
“There are families where it’s absolutely impossible” to save, he added. But most middle-income families “have some type of expenses that are discretionary. Usually there are a few items where you can say, ‘Is it more important to have this night out, this meal out, this set of cable channels, or should you take care of the financially important things for your family?'”