A new Credit Sesame survey reveals 80% of Americans are worse off at the start of 2023 because of inflation in 2022.
In times of high inflation, the essentials — food, gas, utilities — typically go up in price. This was true for 2022. Unfortunately, paychecks did not follow suit.
Credit Sesame’s December 2022 Credit Health and Financial Fitness survey found that the earnings of most Americans did not keep up with last year’s rapidly rising prices. The problem was especially bad for low earners.
4 out of 5 Americans are worse off because of inflation
At the time of the survey in early December 2022, the inflation rate over the previous 12 months was 7.1%. The survey asked over 1,500 people what pay raise they had received in the past year. For over 80% of respondents, pay raises fell short of inflation.
- 10.00% received a pay cut
- 39.28% pay stayed the same
- 32.56% received a pay raise below 5% (under inflation)
- 7.00% received a pay raise of 5% to 8.5% (approximately equal to inflation)
- 11.16% received a pay raise above 8.5% (higher than the rate of inflation)
This means just over 4 out of 5 Americans took a step backward financially last year. Their earnings now have less purchasing power than they did a year ago.
Purchasing power fell for more low-income earners
Credit Sesame divided wage earners into three groups based on annual salary and assessed whether their pay raises were under, approximately equal to or higher than inflation. The vast majority of respondents failed to get a pay raise that came close to the inflation rate regardless of income level.
The situation was worst in the low-income group where 90.75% did not get pay raises that kept up with inflation. Within that group, 46.24% saw no change in pay and 16.57% took a pay cut. That is 62.81% of low-income earners with significantly less purchasing power than a year ago. People already living on $50,000 or less per year saw the task get tougher as prices rose much faster than their incomes.
High-income earners fared better but were also left behind by inflation. 71.43% of this group did not get pay raises that kept pace with price increases.
Inflation means rising interest rates
Usually, high inflation comes with rising interest rates. 2022 was no exception. This made the situation worse for people who had to borrow to make ends meet as things got more expensive.
According to the Federal Reserve, the average interest rate charged on credit card balances rose above 20% last year. Credit card debt rose to a record high last year. For people carrying credit card balances, the interest owed is growing faster than they have ever experienced previously. Relying on increased credit card borrowing is inadvisable and it is especially damaging to finances when interest rates are high.
When prices rise, people tend to spend more. They buy the same things but pay more for them. That’s understandable in the short term, but it can lead to living beyond your means. What can consumers do to minimize the effect of inflation on their lifestyle?
Find a way to earn more
2023 is a great time to think about changing jobs for higher paid employment.
The unemployment rate recently dropped to its lowest level since the 1960s. There are two job openings for every person looking for work. Workers are in high demand. That means most employees and job-seekers have unusually strong bargaining power.
You can use that bargaining power to ask for a raise. Chances are, your boss knows how hard it would be to hire someone to replace you and may be open to raising your salary. Done respectfully and with clear knowledge of why you are valuable to your organization, it should be possible to make a good business case for yourself. It is unwise to threaten to quit or demand a raise as your right.
If your current employer cannot weather wage increases, perhaps take a look at the job market. Skilled workers are in demand, and perhaps there are better opportunities for someone with your talents.
If you are thinking of changing jobs, better sooner rather than later as the job market won’t stay this strong forever.
Adjust your budget to your pay
If your purchasing power is lower you may have to cut unnecessary luxuries, buy cheaper alternatives and reduce expenses in any way you can.
December 2022 and January 2023 saw inflation start to ease, but the higher prices it caused over the past couple of years are likely here to stay. It is a good idea to adjust your budget to be in line with what you earn. If prices went up and your salary did not, then you may need to cut some of what you buy to keep your spending within a new budget. It’s not easy, but getting further into debt is probably worse in the longer term.
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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.
The Credit Sesame Credit and Financial Fitness Survey December 2022 was designed and executed by Credit Sesame using the WebEngage survey tool. The survey sample comprised over 1,500 Credit Sesame members with a credit score distribution resembling the U.S. general population. In aggregate the sample data is accurate with a 2.5% margin of error using a 95% confidence level.