If you are among the 93% of Americans who use the internet, you might have heard the fact that more than 40% of us cannot afford to cover a $400 expense. The statistic comes from the Federal Reserve, which has conducted a similar survey since 2013. What you might not know is that the actual situation is much worse than this single figure can encapsulate. Depending on age, race, and other factors, some groups of Americans are significantly worse off, and the COVID-driven economic displacement and inflation certainly is not helping.
The real wages of American workers – except those at the very top – have been steadily falling since 1973, and have resulted in a spike in household debt in recent decades. Today, between 50-74% of all workers in the country make less than $50,000, but the current threshold for financial security lies almost at $122,000 per year, according to a detailed study conducted in 2022. The average American consumer holds a debt of around $90,000 today, but the distribution is quite uneven among people of different age groups, with younger workers (who also have lower incomes) particularly burdened. The same pattern is repeated when it comes to savings, with the difference that retired people tend to eat up their savings over time. The Federal Reserve also found that White families had roughly ten times more wealth than African American households in 2016.
The current inflation crisis has made. According to latest data, more than 63% of Americans now live on paycheck to paycheck, which is actually an improvement over the 65% in 2020 and the 64% reached earlier this year. This includes those in the highest income brackets, with 49% of those earning more than six figures confessing to spending their entire entire paycheck before the next month. What this means is that many Americans are not only forgoing any saving for the future, but actually draining up their bank reserves or going deep into debt just to keep their head above the water.
While wage growth is at its highest level in nearly two decades, the consumer price index actually saw an increase of more than 8% this year alone, the highest since 1982. As a result, real wages have fallen a staggering 3% in 2022 compared to only one year ago. This decrease comes amidst soaring food and gas prices, which are some of the essential commodities that hit low-income workers particularly hard. It is no wonder that two-thirds of American workers now say they were financially worse off than a year ago.
This inflationary wave is not unique to the U.S., and has in fact impacted most nations far worse, and a ‘super-strong’ U.S. dollar continues to impact global markets adversely abroad. In contrast to almost all previous financial recessions, the post-pandemic inflation is actually driven by a strong demand and labor-supply disruptions, thanks to the COVID-19 lockdowns, with the situation significantly exacerbated by the ongoing War in Ukraine and the accompanying energy sanctions on Russia.