As inflation has ramped up, one factor which has countered its effect were high levels of personal savings by consumers. However a few recent studies have indicated those caches of personal savings are beginning to be worn down.
A recent study by the American Consumer Credit Counseling found that nearly 40% of consumers are unable to put any of their income into savings now. Another 19% have said they have had to decrease their savings rate.
Meanwhile 48% of consumers said their family’s lifestyle was being impacted by the rising cost of basic necessities. That was up from 39% in the first quarter.
Allen Amadin, president and CEO of American Consumer Credit Counseling, said, “The pandemic, wars overseas and other world events have had unprecedented effects on our society when it comes to household finances. Consumers have been going through many different financial phases in a very short period of time forcing them to pivot several times accordingly to the challenge.”
In a separate study by LendingTree, 43% of Americans, especially young adults and parents with young children, expect they will add to their debt in the coming months as they try to make ends meet. Most expect they will need to rely on credit card debt to bridge the gap between what they need and what they can afford.
Already, total household debt rose to a record level of $15.84 trillion at the beginning of the year, driven by the rise in borrowing, as well as auto loans, student debt, and mortgages.
Matt Schulz, LendingTree’s chief credit analyst said, “The truth is that debt can be either a sign of confidence or struggle. Many people take on debt because they feel good about their financial situation and aren’t too worried about paying a little interest if it gets them what they want or need. Plenty of others take on debt because they have to. There’s no question that both situations are happening right now.”
But the number of confident borrowers may not be as high as before. According to J.D. Power data, American satisfaction with their own financial conditions is at a 12 month low. Those who classify themselves as financially unhealthy has risen to as high as 64%.
All of that is being produced by rising prices that are not keeping up with wages, leaving consumers to bear the burden of the shortfall.
