With inflation, more middle-class Americans are struggling to make ends meet

• Many people still identify with the middle class, although that doesn’t mean they used to.
• Inflation is largely to blame.

When inflation soared, middle-class Americans were particularly hard hit.

For them, prices rose faster than their incomes, according to a September report from the Congressional Budget Office. The report says that household incomes in the lowest and highest income groups rose faster than prices over the same time period.

Although middle-class wage growth is strong by historical standards, it has not kept pace with the increase in the cost of living, which rose 6.5% year-on-year in December, making life difficult for the former middle class. generations have done.

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Nearly three-quarters, or 72%, of middle-income families say their incomes are below the cost of living, up from 68% a year ago, according to a separate Primerica report based on a survey of $30,000+ households. and $100,000. A similar share, 74%, said they couldn’t save for the future, up from 66% a year ago.

The middle class is shrinking

Economists have different definitions of the middle class. The Pew Research Center defines the middle class as those who earn two-thirds to two times the median income of an American household, which was $70,784 in 2021, according to the Census Bureau. This means that US households earning between $47,189 and $141,568 are technically included, even though the median income is roughly $90,000.

As often mentioned, the proportion of adults living in middle-class households is declining. As of 2021, 50% of the population falls into this group, compared with 61% 50 years ago, according to Pew.

Their share of the country’s wealth is also declining, while the top 1% continue to accumulate more and more, several other studies show.

“It will only get worse”

According to a recent report by the Consumer Financial Protection Bureau, Making ends meet, financial well-being in general is deteriorating.

Across the board, households are slow to adjust their spending habits. Even with significant price increases, consumer spending has not changed much.

To bridge the gap, Americans are putting money into their savings accounts and adding to their credit card balances. This makes them more financially vulnerable in the event of an economic shock.

Economists are now forecasting a possible recession, with 62% of middle-income households saying they need to prepare financially, Primerica also found.

“Unfortunately, I think it’s only going to get worse,” Ted Jenkin, CEO of Atlanta-based Oxygen Financial and a member of the CNBC Board of Advisors, said of the financial plight of Americans.

Hope for the American Dream is at an all-time low, especially among the middle class, according to the latest Gallup Poll, which tracks Americans’ estimates of the likelihood that the next generation will surpass their parents’ standard of living.

Now 59% of Americans are middle-income—or those making between $40,000 and $100,000, according to Gallup. — said that it is very or somewhat unlikely that today’s youth will have a better life than their parents, compared to 48% of people with an annual family income of less than $40,000 who believe so.

With inflation “you really have to get disciplined”

“As middle-income families brace for a possible recession this year, it is more important than ever that they take control of their personal finances by addressing debt, setting a budget and controlling spending,” said Glenn Williams, CEO of Primerica. statement.

Experts often recommend starting with high-interest credit card debt. Credit card rates, in particular, now average over 19%, an all-time high. These annual interest rates will also continue to rise as the Federal Reserve continues to raise its base rate.

If you currently have credit card debt, choose a personal loan with a lower interest rate or a zero interest balance transfer card and refrain from making additional credit purchases if you cannot pay off the balance in full at the end of the month and even put some money aside .

“You really have to become disciplined or you will exceed your income,” Jenkin said.

Some simple financial tricks, like going to the grocery store less and cutting back on online purchases, can help cut your costs, Jenkin says.

“Grocery stores are like Las Vegas; they are here to separate you from your wallet.” Meal planning is one way to cut down your shopping list to the essentials for the week and save money.

Disabling a one-click order or deleting saved credit card information can also help. “Anyone who shops on Amazon and has a credit card saved, you are essentially pouring lighter fluid into your budget,” Jenkin said.

Jenkin recommends waiting 24 hours before making an online purchase and then using a price-tracking browser extension like CamelCamelCamel or Keepa to find the best price.

Finally, tap on a savings tool like Cently which will automatically apply a coupon code to your online order and pay with a cashback card like the Citi Double Cash Card which will earn you 2%.

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