How Inflation is Impacting Average Americans’ Finances

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Over the last couple of years, the United States has experienced some of the highest inflation rates in decades. From the gas pump to the grocery store, prices are markedly higher across the board.

This sustained period of high inflation is putting immense financial pressure on the average American household. With a bigger chunk of their income being eaten up by essentials, consumers are making difficult sacrifices just to make ends meet.

Cutting back on discretionary spending

One of the most noticeable impacts of inflation is that consumers have drastically reduced discretionary purchases. Over two-thirds of Americans say they are cutting back on dining out, entertainment, vacations, and other non-essential spending.

How Inflation is Impacting Average Americans’ Finances

With inflation driving up the costs of gas, food, housing, and other staples, fewer dollars are left over at the end of the month for leisure and recreation.

Households are also using their credit cards less frequently to limit borrowing. Credit card balances dropped by over $15 billion earlier this year - the steepest decline on record. While reducing discretionary purchases and credit card usage can help in the short term, it also slows economic growth. If consumers aren't spending, businesses earn less revenue.

Leaning on savings and credit

In the absence of discretionary income, many families are dipping into savings and racking up credit card debt just to afford groceries and other essentials. Nearly half of Americans with credit card debt say they've added to their balances specifically due to inflationary pressures. Once those savings run dry, households would face even tougher choices about which expenses to prioritize.

Meanwhile, credit card interest rates are now averaging over 20%, making debt increasingly expensive to carry. It creates a problematic debt cycle that gets harder to escape.

Delaying major milestones

Big life goals like buying a house, having a child, or retiring are being put on hold as inflation erodes Americans' purchasing power. Homeownership, in particular, is becoming more difficult as rising interest rates drive up mortgage payments. Existing home sales have decreased for eight straight months.

The U.S. birth rate also hit its lowest point in decades in 2020. Some experts attribute this in part to would-be parents feeling they can't afford the costs of raising a child. These delays in major personal and financial milestones could have impacts that last beyond just the period of high inflation.

Investing and saving less

In addition to spending adjustments, inflation is also causing Americans to invest and save less money. Over half of U.S. adults say they are investing less for retirement due to inflated prices. Even a temporary pause in retirement contributions can significantly reduce the compounded growth of those funds over decades, making it harder to reach long-term goals.

Investing and saving less

Americans are also saving less in emergency funds, leaving them vulnerable if an unexpected crisis arises. Without a cash cushion, a major expense could quickly spiral into credit card debt.

Weighing job and career changes

With pay raises failing to keep up with the rising cost of living, some Americans are considering jumping ship for a higher-paying job or even switching careers entirely. Job resignations hit record highs in 2021, which continues during this year as well, a trend dubbed the "Great Reshuffle." It could create opportunities for job seekers willing to learn new skills and change roles.

However, switching jobs too frequently could also be risky if a recession hits. Employers tend to lay off recent hires first when cutting back. So chasing higher salaries by job hopping may not always pay off.

Adapting spending habits

In addition to spending less, consumers are also changing how and where they spend to get more bang for their buck. Strategies include buying generic brands, shopping at discount stores, buying in bulk, cutting the cable cord, and finding free entertainment options. Consumers have also reduced subscriptions and memberships.

While these adaptations can cushion the impact of inflation in the short term, they still represent a lower standard of living for many Americans. Small luxuries that were once affordable are disappearing from household budgets.

The cumulative toll

Individually, the steps Americans are taking to adapt to inflation may seem small, but collectively, these sacrifices illustrate just how severely this sustained price pressure is impacting household finances. Luxuries have become unaffordable, expenses pile up faster than earnings, and long-term goals feel increasingly out of reach.

By cutting corners wherever possible and taking advantage of lending options like the CreditNinja no credit check loan, consumers are trying to weather the inflation storm. But the cumulative toll of high inflation across months and years cannot be understated, and many households are struggling.

Looking ahead

With inflation projected to remain high for the near future, consumers will likely need to keep adapting their money habits. Strategies like tracking spending, budgeting rigorously, limiting debt, and investing wisely will be key to staying afloat. While inflation creates challenges, those who make smart financial moves can still work toward major life goals despite rising prices.

Buying habits are shifting

With wallets stretched thin, consumers have become extremely price-conscious in their shopping habits. Instead of reaching for name brands, more Americans are opting for cheaper store brands and generics to save a few dollars. Discount grocery chains have seen sales surge as shoppers flock to stores promising rock-bottom prices.

Buying Habits Are Shifting

Shoppers are also hunting for deals like never before. The use of coupon apps and deal websites is way up, as is enrollment in customer loyalty programs that offer special discounts to members. Retailers observe that customers are willing to jump through more hoops if it means securing a bargain.

Many consumers are also buying essentials like paper products and non-perishable food in bulk. Though the upfront cost is higher, buying larger quantities allows households to lock in lower per-unit prices. Coupon clipping services, which provide bulk coupons by mail, have also grown in popularity for scoring deals on household staples.

Cutting back on healthcare

Healthcare is another area where consumers are cutting corners to divert funds towards other pressing expenses. Americans have reduced routine doctor and dental visits over the last couple of years. Important screening exams like mammograms have also declined significantly.

This preventative care is crucial for detecting issues early before they turn into even costlier medical problems. But with inflated prices across the board, some households are putting off non-urgent appointments to make ends meet today. Those without adequate insurance coverage are especially likely to delay care.

Even those with health insurance are feeling the pinch, as premiums and deductibles outpace wage growth. Employers also continue shifting more health costs onto workers. Without relief, healthcare could become unaffordable for a growing number of working Americans.

The impact on small businesses

Small businesses are being hit especially hard by inflated costs for inventory, supplies, transportation, and labor. Unlike large corporations, small business owners often don't have enough leverage with suppliers to keep price hikes at bay. They also have smaller cash reserves to absorb losses.

To stay afloat, many small businesses have been forced to raise their prices, even at the risk of driving away buyers. Others have tried cutting staff or operating hours. These adaptations allow companies to survive in the short term but also chip away at their competitiveness and growth prospects down the road.

If small businesses continue struggling, it could stall job creation and innovation. Supporting local small businesses through uncertain economic times helps protect the overall health of communities.

Changing travel habits

Vacations and travel look different for many Americans in this inflationary environment. Rather than booking far-flung destinations, local “staycations” have become more common to avoid costly airfare. For those still willing to hit the road, gas prices that continue hovering over $4 per gallon nationwide have made road trippers think twice.

Inflation

Many families are also seeking out affordable, low-key activities to replace lavish trips. Instead of expensive resorts, they may book a vacation rental and cook their own meals to control costs.

Camping has surged in popularity for its relatively low overhead once the gear is purchased. Even with adjustments, vacations still strain family budgets. One survey found a third of parents are going into debt to cover summer travel this year.

Rethinking education plans

The cost of education has also inflated rapidly, causing potential students to rethink their plans. Over the last 20 years, the average tuition more than doubled at private nonprofit four-year colleges and public two-year colleges. Even community colleges saw average tuition rise by 36% in the last 20 years.

While grants and scholarships can offset some expenses, student loans are also getting more expensive as interest rates climb.

Families are exploring all options to minimize debt, including commuting from home, mixing community college with four-year programs, or pausing education until they can save up. With earnings potential linked to education level, inflated costs could impact Americans’ social mobility.

Conclusion

In summary, this period of high inflation is forcing average Americans to make tough but necessary changes to household finances. From cutting discretionary spending to taking on side jobs, consumers are doing what they can to counteract inflation's bite. 

While these sacrifices aim to mitigate the sting in the short term, they could have lasting impacts on standards of living and financial trajectories. With creative financial management, consumers can overcome the challenges of inflation and continue working toward long-term goals. But it will require patience and diligent money strategies in the meantime.

About the author 

Peter Keszegh

Most people write this part in the third person but I won't. You're at the right place if you want to start or grow your online business. When I'm not busy scaling up my own or other people' businesses, you'll find me trying out new things and discovering new places. Connect with me on Facebook, just let me know how I can help.

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