Middle class households appear to be beginning to feel the effects of the record inflation. Among households with income between $30,000 and $100,000, 75% say their earnings are falling below their cost of living, according to a survey by Primerica. 77% say they believe the US will be in a recession by the end of 2022.
Financial worries are also increasing over the last six months, as 39% of survey participants say they expect to be worse off financially a year from now, up from 32% in March, and 28% in December of last year. That metric came in at 17% in December of 2020.
Glenn Williams, CEO of Primerica said, “There’s a higher level of concern financially among middle-income families than there was even at [the height] of the pandemic.”
Primerica performs its survey on the financial security of middle-class Americans quarterly, surveying 1,400 adults.
Inflation has impacted households significantly, as it has rocketed to 9.1% in June on a yearly basis. That is the fastest rate since 1981, and it has affected consumer expenses from clothing to gas and cars.
Williams said, “When you see rising prices in staples like gas, rent, things you can’t avoid … it comes down to tougher decisions around priorities.”
Incomes have not been keeping pace with the rises in prices. As inflation was up 9.1%, wages only rose 5.1%, so inflation has wiped out all increases in wages, and then some.
Kathryn Hauer, a certified financial planner with Wilson David Investment Advisors said, “Inflation always hurts those who make less money because the portion of their income that goes to necessities is much higher than that of wealthier people.”
The Federal Reserve meanwhile recently raised the Fed funds rate by 75 basis points for the second meeting in a row, in an effort to tighten monetary policy and rein in inflation. Now the question is if the economy can avoid falling into a recession.
Presently economist are split on whether or not the economy is in recession. The economy has shown two consecutive quarters of economic contraction, a commonly held measure of a recession. However the job market still shows positive indications which might cause the National Bureau of Economic Research, the organization which makes the official call, to declares the economy has not yet entered a recession.
Whether or not the economy has technically entered a recession, experts say now is the time to set aside a small amount of cash to serve as emergency funds.
Hauer said, “Now, of all times, you want to try to put aside some cash for emergencies like a layoff or a broken home HVAC unit. Many Americans live paycheck to paycheck, which is never good but can cause insurmountable problems if the economy tanks. We understand people are using [credit cards] to fill gaps right now … but as soon as possible try to turn that around.”
The average credit card rate has been slowly creeping upward, and now sits at over 17%, according to data from CreditCards.com. Consumer credit card debt sat at about $840 billion in Q1, which was $15 billion lower than the preceding quarter, but it was $71 billion more than a year back.
