Higher Interest Rates Bring More Pain To Lower-, Middle-Income Americans
The U.S. economy is still growing, and the unemployment rate is hovering near multi-year highs. Yet, according to a recent survey by digital marketplace LendingClub, 63% of Americans live paycheck to paycheck, as persistently high inflation and rising interest rates continue regressively "taxing" incomes.
"Consumers of all income brackets are increasingly feeling the strain of inflation, and a growing share of high earners report living paycheck to paycheck," said the company's press release. "In November 2022, 47% of consumers earning more than $100,000 per year reported living paycheck to paycheck, a 4-percentage point increase from 43% in October 2022."
The situation becomes worse among low-income Americans. For instance, 76% of consumers with an annual income of less than $50,000 were living paycheck to paycheck, up from 74% the month prior. In addition, 66% of consumers earning between $50,000 and $100,000 were living paycheck to paycheck, compared to 65% the month prior.
Tadrus Capital CEO Mina Tadrus blames low income and the high inflation of 2022. "This is due to several factors, including having a job with low pay, working part-time, and having a limited number of job opportunities in one's field," he told International Business Times.
Tadrus sees high regular expenses that exceed incomes, also due to the current trending inflation, further aggravating the problem. "This is due to many factors, such as having high rent or mortgage payments, carrying much debt, or having expensive lifestyle habits," he added.
It's a situation that can be made even worse by the lack of budgeting skills, like failing to track spending, not setting financial goals, or not being aware of the financial situation.
Still, he adds one more factor, unexpected expenses, such as medical bills or car repairs. They can also contribute to living paycheck to paycheck. "This is especially the case as many have essentially stopped investing and lost money in financial markets."
And the situation can become far worse in the future, due to higher interest rates. The Fed will continue raising interest rates until the labor market cools off, meaning higher unemployment and more Americans going from living paycheck to paycheck to having no paycheck at all.
Consumer finance expert Andrea Woroch recommends that people scrutinize monthly bills to stop living paycheck to paycheck.
"Taming lifestyle inflation and reducing your living expenses are necessary for all income levels," Woroch told IBT. "Begin by reviewing your monthly bills to see if you are paying for unused services or subscriptions you didn't even know you signed up for, and regularly compare rates with competitors to see if you can save by switching."
Then get a side hustle. "There's only so much you can do to trim your budget before you bottom out, so think about what you can do to make more money to pay off debt and boost savings," Woroch explained.
In addition, she recommends credit card debt consolidation and curbing impulse buying.
"The point is, spend time assessing what's causing you to live paycheck to paycheck and start finessing your bills and spending habits to lower your spending," she added. "We don't often spend the time to do this until there's some outside financial pressure like inflation, recession, but this is good for everyone to do every few months so you don't waste money and can achieve financial goals."
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