- Soaring prices are having a big impact on consumers.
- We are looking at debt because more consumers are floating.
- Some households have a warning sign.
Everyone is running fast to catch up with the hottest inflation in 40 years, but there are millions of Americans hitting the wall.
Last year, Americans saw price increases for everything from food and gas to used cars and vacations. They initially performed them by relying on the savings accumulated during the pandemic, but inflation quickly devoured them. And these consumers are increasingly turning to credit cards, as there are few signs that inflation will ease quickly.
Credit cards pay invoices now, but consumers may quickly feel pain. Credit cards are notorious for carrying some of the highest interest rates, which are rising as the Federal Reserve embarks on a rate hike cycle to curb inflation. According to Fed data, the average interest rate on credit cards in the first quarter was 16.17%, well above the 9.41% for 24-month personal loans.
Who is most affected by the soaring prices?
Low-income earners have been hit hardest, especially as gas prices continue to rise to record highs.
According to Bank, gas spending on all plastics for the week ending May 21 surged from 7.0% in April to 7.8%, but for low-income households under $ 50,000, gas spending was card spending. It reached 9.4% of the total. A study of the Bank of America Institute. That meant less spending elsewhere, the researchers said.
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According to Equifax and the Census Bureau, 61% of households with incomes less than $ 25,000 said last month that they had some or more difficulty covering their normal costs over the past seven days. Forty-three percent of those earning between $ 25,000 and $ 49,000 reported similar challenges, up from 38% in the previous year.
Why are low-income earners most affected?
Everyone feels the effects of inflation, but not everyone feels the same. Low-income households are likely to have already paid their salaries before inflation began to surge, while high-money households invested in financial markets to earn interest on their assets. You have more options to maintain value.
In the face of rising prices, high-income households also have more opportunities to reduce by selling shopping, using coupons, and exchanging for cheaper brands. Low-income households have already done those things, so the next step is usually simply to eliminate the item.
What are they doing to deal with?
As prices continue to skyrocket ahead of people’s wages, more consumers are looking to debt as they float.
Total consumer credit jumped by a whopping $ 52 billion in March, according to federal data. Revolving credits, primarily credit card balances, increased by $ 31 billion, or about 3%. Non-revolving credit, including student and car loan balances, increased $ 21 billion.
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Meanwhile, bank credit card balances increased 14.2% year-on-year, car loans increased 7.5%, and other consumer loans increased 19% in April. This is from an analysis of Moody’s Analytics on data from credit bureau Equifax.
Will this contribute to the recession?
According to analysts, the data seems to be in the wrong direction, but increased credit balances and delinquency for low-income borrowers are unlikely to contribute to the recession. According to Ian Shepherdson, Chief Economist at Pantheon Macroenomics, the bottom five-fifths of households by income account for only 9% of total consumption.
In addition, according to the Fed, total household debt remains historically low, even though debt repayments have recently risen to 9.3% of personal disposable income in the fourth quarter. By comparison, debt repayments accounted for 9.9% of revenue in the second half of 2019, just before the pandemic, and 13.2% of 2007 before the Great Recession.
What is the verdict?
Consumers in the United States are still generally healthy, but danger signals are emerging when inflation remains high, especially for low-income households.
“On the other hand, the savings accumulated during the pandemic and the sharp rise in wages from the labor market will support consumer spending,” said researchers at the Bank of America Institute. “On the other hand, sustained inflationary pressures, including gas prices, are digging into consumer purchasing power. The former seems to be the dominant force for now, but high-priced long-term or labor. The rapid cooling of the market can put risks downside. ”
Where can I find help?
To limit debt, consumers may instead try to lower their costs. They can visit food depots, apply for a nutritional support program (SNAP), and find local institutions to support rent assistance and other needs. Some states and cities already offer gasoline tax relief.
Elderly people can sign up for Medicare’s Extra Help program. This program helps you pay monthly premiums, deductions, and out-of-pocket payments for Medicare drug plans. They can also check out other options such as the National Council’s website on aging to find local benefit programs that support costs such as prescription drugs, transportation, and subsidized home rentals. Search the Internet using “Regional Agents for Aging” using your zip code to connect to advanced services such as Meals on Wheel, Residential Group Care Agents, Adult Home Day Care Programs, and Free Medicare. You will also see a list of local agencies that you can do. And Medicaid counseling.
Medora Lee is USA Today TODAY’s money, market and personal finance reporter. You can contact her at email@example.com and subscribe to the free Daily Money newsletter for her personal financial tips and business news every Monday through Friday morning.