Credit Sesam discusses how making ends meet got harder over the last two years from September 2021 to September 2023.
From the beginning of September 2021 to the beginning of September 2023, prices were up by 12.2% based on the Consumer Price Index (CPI). However, simply measuring the inflation rate doesn’t really tell the story of how much harder higher prices made things for American households over the past couple of years.
Credit Sesame analyzed some data from the Census Bureau’s Household Pulse surveys to learn more about the real-life impact of inflation. The results show that higher prices hurt millions of Americans in various ways. For starters, over two-thirds of Americans now have difficulty meeting household expenses.
Measuring the impact of price changes
The CPI measures how much prices have changed, while the Household Pulse surveys provide insight into how those price changes have impacted consumers.
One of the survey questions asks people how difficult it is to pay everyday expenses. Credit Sesame compared recent survey results with when inflation started heating up two years ago. This provides insight into how much harder it is to make ends meet.
Credit Sesame also looked at how the use of credit has changed over those two years. This shows how people respond to the increased difficulty of making ends meet, although it might not be the correct response for everyone.
Below are four key findings from Credit Sesame’s analysis of the Census Bureau’s survey data:
1. Thirty-seven million more Americans are having difficulty making ends meet
Recently, 68% of respondents reported having some difficulty paying their usual household expenses, including 16.9% who described it as “very difficult” to meet their usual household expenses. This is up from 51% two years earlier. Based on the survey responses, projecting that increase over the entire population suggests that 37 million more adults in the U.S. are now having difficulty meeting normal household expenses compared to two years earlier.
That means over 150 million Americans say they are having some difficulty making ends meet. Note that the survey asked about everyday expenses. The degree of difficulty for these households may rise significantly if they encounter a financial emergency such as a job loss, the need for a car repair, or an unexpected medical expense.
2. Elders took a big hit to lifestyle
The good news for people 65 and older is that the survey shows they have less difficulty making ends meet than other adults. The bad news is that this age group experienced the most significant rise in financial difficulty over the past two years.
57% of the 65-and-above age group reported having trouble meeting usual household expenses. That’s lower than the general adult population percentage of 68%. However, it is a 22% rise from two years earlier, a bigger jump than any other age group.
While older Americans may be wealthier than younger people, they are also more likely to depend on limited financial resources. When high inflation hits, it shrinks the purchasing power of those resources.
Throw in significant declines in the financial markets last year, and it’s easy to see why the financial security of the eldest age group has deteriorated so rapidly.
3. Middle-income Americans are finding it tough
Not surprisingly, lower-income households are having the most difficulty making ends meet. 85% of respondents with household incomes below $25,000 reported having difficulty paying their usual expenses. That was up by 4% from two years earlier.
This is a serious issue, but the challenge of getting by on a low income is nothing new. The biggest shock over the past two years is in middle-income tiers. The $50,000 to $74,999 income tier experienced a 21.6% increase in people having trouble meeting expenses.
The next income level up had the biggest increase of all. In the $75,000 to $99,999 income group, an additional 27.8% now have trouble meeting expenses compared with two years earlier.
While low-income households still have the greatest difficulty meeting expenses, the biggest increases in difficulty came in the middle-income groups. These are people who previously may have felt themselves financially secure.
Significantly, more than half of every income group below $150,000 reports having difficulty meeting their usual household expenses.
The challenges of poverty are all too well known. Because of inflation, those challenges are increasingly seeping into the middle class.
4. Borrowing is up
It’s no secret that Americans have responded to rising costs by borrowing more. Consumer debt continues to hit record highs month after month.
The Household Pulse surveys allowed Credit Sesame to examine where that borrowing originated. Not surprisingly, the percentage of Americans relying on credit cards or loans to get by has increased from 31% to 40% over the past two years.
However, it’s not the neediest Americans who are borrowing more. The use of credit cards or loans is up in every income group except the lowest one. The percentage of survey respondents relying on credit cards or loans is down slightly in the under $25,000 income group.
This probably has more to do with credit availability than needing it. As household budgets come under stress, more and more low-income people will likely run into credit problems. At the same time, lenders have been tightening credit standards. Credit is becoming less of an option for some households.
Troubling trends during an economic expansion
Inflation seems to be the likely culprit for American households’ increased difficulty in making ends meet. After all, unemployment has been low over the past two years, and wages are up.
This makes the high percentage of households under financial stress even more troubling. Over two-thirds of Americans are finding it difficult to make ends meet at a time when working conditions are pretty good. If a recession hits and unemployment rises, things could get much tougher.
As challenging as things are, this would be a good time for households to tighten their budgets and set some money aside for emergencies. Though inflation has eased somewhat, other economic problems may follow.
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Disclaimer: This guide to buying a house and getting a mortgage is for informational purposes only and is not intended as a substitute for professional advice.