The New Broke Normal Burdening America
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While politicians try to wrangle their words to hide the facts, the truth is that Americans are suffering more now than we’ve seen in decades. It seems everything has hit us at once as we all try to cope with post-pandemic living, the effects of being shut down, and the constant infighting in Washington that sees nothing getting done.
The financial challenges many Americans face are multifaceted and influenced by various economic factors. The current state of the economy, characterized by inflation, economic instability, and a lack of savings, has led to increased financial stress among Americans. According to a CNBC survey, 70% of Americans admit to feeling financially stressed, with 52% reporting increased financial stress since the start of the COVID-19 pandemic.
Inflation and rising prices for everyday goods have made it difficult for people to save for emergencies, with 74% of respondents citing economic factors such as inflation, rising interest rates, and changes in income or employment as reasons for saving less. Additionally, the pandemic brought about a unique situation where disposable income increased, but subsequent spending has depleted the stockpile of cash that many households had accumulated.
This has left nearly half of adults with less savings or no savings compared to a year ago, and more than one-third with more credit card debt than cash reserves. Furthermore, job cuts and reduced job security have contributed to financial dilemmas, increasing auto loan default rates and car repossessions. The public perceives that the current economy is helping the wealthy but hurting the poor and middle class, exacerbating many Americans' financial challenges. Relief measures such as government assistance programs, financial education, and policies aimed at addressing inflation and job creation may help alleviate some of these financial burdens.
In the past three years, we’ve been hit with many hardships all at once, it seems, and people are struggling to survive. Let’s look at the new broke normal and its burden on America and how it’s impacting US consumers, their bank accounts, debt, and their credit standing.
Medical Expenses
Nearly 40% of US households have faced serious financial problems, including struggling to afford medical care. In the past few months, 17% of households reported serious problems affording medical care, including 28% of households with annual incomes below $50,000.
Medical Debt Impact on Everyday Life
Financial Burden: This problem is particularly pronounced for households with annual incomes below $50,000. Medical debt is a significant financial burden for many families. According to recent estimates, over 3 million people owe over $10,000 in medical debts. The poorest communities were most affected.
Impact on Poor Communities: In 2020, they added $836 on average in new medical debt per capita, up from an annual amount of $630 in 2009. About 60 percent of adults who have incurred medical debt say they have had to cut back on necessities like food or clothing, and more than half the adults from low-income households (less than $40,000) report that they have used up their savings to pay for their medical debt.
Delaying or Skipping Medical Care: Nearly a third of Americans have skipped medical care for a health problem in the previous three months due to cost.
Loss of Savings: The coronavirus pandemic and related illnesses have significantly impacted people’s savings. Among lower-income households, 30% reported losing all their savings during the pandemic, and many used their savings to cover medical expenses.
Managing Medical Costs
Employer Support: Many employers have made strides to help alleviate some of the medical cost burden for employees amid rising healthcare costs, especially during the COVID-19 pandemic.
Government Aid: The Biden-Harris Administration has been working on lowering healthcare costs and expanding access to coverage.
Personal Strategies: Individuals can also take steps to manage healthcare costs, such as developing a good relationship with a primary care physician, avoiding unnecessary emergency department visits, and adhering to prescribed treatments.
Impact on Credit History: Medical debt can significantly impact your credit score. In fact, your payment history, which includes medical debt, accounts for as much as 35% of your overall credit score. Unpaid medical debt can remain on your credit report for up to 7 years, just like other debt.
A medical debt collection can lower your credit score by as much as 100 points. However, starting March 31, 2023, the credit reporting agencies will no longer include medical collections under $500 on your credit report. So, those accounts won’t hurt your credit. Paid medical collections do not appear on your credit reports at all, but more significant unpaid medical collection balances can cause your credit score to decrease.
Massive credit card debt in the US
Americans' credit card debt has reached a record $1 trillion, according to data from the Federal Reserve Bank of New York. Credit card balances have risen for five consecutive quarters, increasing at some of the most considerable rates in 20 years. The average credit card interest rate is nearly 21%, which is significantly higher than in previous years.
Rising credit card debt is attributed to factors such as inflation, higher interest rates, and the overall increased cost of living. The average household credit card balance was $10,173.87 in June 2023, which is close to the record set in Q4 2007. The combination of rising balances, higher interest rates, and economic factors presents challenges for borrowers. As a result, credit card debt and debt per household grew by about 8% from the previous year. These statistics illustrate the significant and concerning levels of credit card debt in America.
Repossession rates for vehicles Doubled in 2022
The repossession rates for vehicles in the US have increased in recent years. According to Fitch Ratings, the number of subprime borrowers at least 60 days behind on their car payments hit a seven-year low of 2.58% in May 2021, but by December 2022, it more than doubled to 5.67%. Cox Automotive reported that the rate of vehicle repossessions increased by 20.4% nationwide.
Despite high inflation and rising interest rates, the overall default rates in 2022 remained low compared to 2019, partly due to the high value of used vehicles, which provided consumers with more options to catch up on their payments. Subprime auto repossessions were up 11% from 2020, and the share of subprime and deep subprime loans, considered the riskiest and accounting for most repossessions, has decreased in recent years.
Many factors, including the current state of the economy, job losses, and inflation, have contributed to the rise in car repossessions in the United States. Job losses and the ongoing economic and financial crisis have significantly strained American families, resulting in debt accumulation and other financial difficulties.
Furthermore, the high cost of living has contributed to the rise in repossessions by making it harder for borrowers to make auto loan payments, particularly when their salaries are stretched to pay for necessities.
22% rise in foreclosures
Additionally, data from ATTOM, a property analytics company, showed that U.S. foreclosure filings totaled 95,712 in the first quarter of 2023, a 22% increase compared to a year ago. These statistics indicate a concerning trend of increasing repossession rates for vehicles and home foreclosures in the US.
Inflation at 40-year high
Inflation remains at its highest level in over 40 years, so millions of Americans face financial hardship due to rising consumer prices. Inflation tends to impact lower-income groups disproportionately.
Inflation right now in the United States is affecting consumers in various ways. The most obvious impact is a loss of purchasing power as the cost of goods and services rises. Inflation can make it harder for low-income or fixed-income people to keep up with the increased costs. It's essential to monitor how your income keeps pace with inflation and consider negotiating for a raise or looking for ways to supplement your income.
Another impact of inflation is higher interest rates. As the Federal Reserve (Fed) attempts to control inflation, interest rates might rise, making it more expensive to borrow money. This can affect household purchases, making major purchases like buying a home or a vehicle more challenging. If you have any debt with a variable interest rate, you may feel the effects of inflation even more significantly.
Inflation also impacts the broader economy. While it may only seem like it affects individual budgets, the trend has far-reaching effects across the economy. For instance, inflation can lead to higher prices for goods and services, limiting people's income. The rise in inflation can also impact businesses, affecting their production and supply chains. In essence, inflation can lead to a slowdown in the economy as consumer spending decreases.
Inflation hits low-income and fixed-income individuals significantly, reducing their purchasing power and making it harder for them to make ends meet. It also increases the cost of borrowing, which can be challenging for people reliant on credit. Overall, inflation has various negative repercussions on individual's ability to pay their bills. However, it is essential to monitor inflation and make budget adjustments accordingly to minimize its impact on your financial well-being.
Struggling to survive inflation
Save smartly: Make a budget and stick to it. Cut unnecessary expenses and aim to save at least 10% of your income.
Track and reduce your spending: Monitor your spending habits and identify areas where you can cut back. Set a budget for each category of expenses and track your spending to ensure you stay within your limits.
Create more income streams: Consider ways to increase your income, such as taking on a second job, selling unused belongings, or starting a side business. Many people now use AI's power to create online side gigs for extra cash.
Make some lifestyle adjustments: Adjust your lifestyle to align with inflation rates. For instance, choose public transportation over personal vehicles, eat out less often, and delay major purchases.
Fewer debts, more investments: Eliminate high-interest debts and invest in assets like stocks or bonds that grow with inflation rates.
Maximize coupons and loyalty programs: Utilize discounts and loyalty programs to cut down on grocery and disappointment costs.
Buy groceries in bulk: Purchasing non-perishable voluminous items such as rice, beans, and canned goods can save money in the long run.
Negotiate your bills: Consider negotiating your bills to reduce your monthly expenses. This can include negotiating with service providers for lower rates or exploring options for more affordable alternatives.
Moody's 2023 Analytics report indicates an average American household spends about $460 more monthly for the same goods as last year.
Living Paycheck to Paycheck
Many households live paycheck to paycheck, and an unforeseen problem can quickly become a disaster if you are unprepared.
According to a recent survey conducted by LendingClub Corporation in partnership with PYMNTS, as of June 2023, 61% of U.S. consumers are living paycheck to paycheck, which is unchanged from the previous year despite the high inflation rates, making it difficult for people to pay their bills. The research highlights the challenges different household compositions face, with lower-income groups and families living with children facing more difficulties managing expenses and saving.
A study by SmartAsset also reports that even those earning six-figure salaries are struggling to keep up with the rising costs of living. The study reveals that in December 2022, 51% of people earning more than $100,000 reported living paycheck to paycheck, marking an increase of 7% from the previous year.
Allegedly, over 60% of respondents live paycheck to paycheck, which can be attributed to factors such as inflation, high debt levels, and reduced income growth. The data released by the PYMNTS and LendingClub reveals the importance of financial management and planning in maintaining a comfortable standard of living.
It's worth noting that credit card balances and the rise in financial insecurity among high-income earners are also of concern. With the recent hikes in interest rates, credit card providers can charge borrowers higher rates, exacerbating their financial struggles. Understanding the root causes of living paycheck-to-paycheck in the US and how to manage your finances effectively is essential. Developing a budget plan, reducing unnecessary expenses, and finding ways to control inflation can go a long way in helping you maintain financial stability as you wait out relief.
Unemployment rates
As of January 2023, the national unemployment rate is 3.4%, which is near historic lows. This indicates a highly tight labor market.
While the overall unemployment rate is low, long-term unemployment (27 weeks or more) is still elevated compared to pre-pandemic levels. As of January 2023, around 1.1 million people were long-term unemployed.
The unemployment rate differs significantly by state. In January 2023, the highest state unemployment rates were in California (4.7%), New Mexico (4.5%), and the District of Columbia (4.4%). The lowest rates were in Utah (2.3%), Idaho (2.4%), and Alabama (2.5%).
Demographic groups are recovering from pandemic job losses at different paces. For example, the black unemployment rate was significantly higher in January 2023 at 6.0%, compared to 3.1% for white Americans. Job openings have fallen from record highs during the pandemic, but there were still over 11 million job openings in December 2022, indicating continued labor demand.
Wage growth remains high as employers compete for workers. Average hourly earnings rose 4.6% over the last 12 months, though this was outstripped by inflation.
negotiating a higher salary to adjust to soaring inflation
Negotiating a higher salary to adjust to a higher cost of living in the US involves several key steps. Here are some tips based on the search results.
Establish your value: Establish yourself as a valuable employee before negotiating a cost of living adjustment. Highlight your contributions and achievements within the company to demonstrate your worth.
Have a specific number in mind: When negotiating your salary, have a particular number in mind and make the first offer. If it's a no, ask what you need to do to get a raise, and don’t let the conversation stop without concrete specifics.
Focus on your value to the company: When discussing a cost of living increase, focus the conversation on why you deserve a raise by highlighting your work accomplishments and detailing how you will continue to provide value to the company.
Pay attention to the work climate: Before asking for a raise, pay attention to the environment at work. Be prepared to show why you deserve a raise and how you will continue to add value to the company.
Advocate for yourself: Advocate for yourself by demonstrating your value to the company and how a cost of living raise would align with your contributions and the current economic environment.
Loss of Savings
Among lower-income households, 30% said they had lost all their savings during the coronavirus pandemic. These problems can significantly impact individuals and families, and addressing them often requires a combination of personal effort, financial planning, and sometimes professional help.
Nearly half, or 49%, of adults in the US have less savings or no savings compared with a year ago, according to a Bankrate survey. According to research from the Federal Reserve Bank of San Francisco, excess savings for US households built up during the pandemic will probably be exhausted in the current quarter.
The personal savings rate in the US was 3.9% in August, well below a decades-long average of roughly 8.9%. The decrease in savings is attributed to various factors such as inflation, unemployment, and changes in income and employment. Additionally, Americans are leaving money on the table by not stashing cash in high-yield savings accounts, despite higher interest rates, because many cannot afford to contribute to saving. The average personal savings rate in the United States was 4.1% in July 2023. However, the personal savings rate decreased to 3.40% in September 2023.
cost of living impacts savings
The cost of living in the US affects people's ability to save money in several ways. Rising prices for basic necessities such as food, housing, and utilities mean less money is available for savings and discretionary spending. According to a Forbes Advisor, the cost of living can impact people's ability to save for the future, as individuals who spend a significant portion of their income on basic necessities may not have enough money left over to save for retirement or emergencies.
Additionally, the cost of living can affect people's ability to pay for housing, leading them to live in smaller or less desirable homes or neighborhoods. Inflation, which erodes purchasing power, can make it difficult for individuals with lower fixed incomes to afford necessities like food, housing, medications, and transportation. As a result, the annualized inflation rate in the US for the 12 months ending September 2023 was 3.7%. These factors collectively contribute to the challenge of saving money in the face of a higher cost of living.
