Americans aren’t wasting any time dealing with runaway inflation, which stands at 8.6% according to the US Inflation Calculator. They’re slamming on the brakes spending-wise, and that trend is going to have ramifications for U.S. households and for the nation’s economy.
“Over the past 30-45 days consumers are very much starting to cut back on "big-ticket purchases" as well as changing their spending habits on many of their day-to-day routines,” said Shmuel Shayowitz, chief executive officer and mortgage banker at Approved Funding, in River Edge, N.J. “Fewer people are willing to buy a house, less are willing to spend on car leasing or financing, and most are scaling back on bigger purchases in their homes such as entertainment, recreational, and even home improvements.”
It's not just on pricier products and services. There’s increasing evidence U.S. households are cutting budgets across the board.
A new study from Breeze, an insurance services company based in Omaha, shows that 88% of consumers have cut spending as a result of inflation. (That figure is based on a recent survey of 2,003 U.S. adults).
Where are they cutting their budgets? Breeze has data on that issue, as well. This is from its study:
- 73% of US households have cut back on restaurants/takeout, 63% on consumer spending, 62% on social spending, 57% on groceries, 54% on vacation, 44% on gas, and 35% on debt payments
- 75% are worried about providing food for themselves and their families, while 93% are intentionally driving less to save gas money, and 87% have cancelled vacation plans
- 63% are struggling to pay their mortgage or rent, with 31% saying their ability to make payments is "already a very serious problem," and 30% saying it will be a problem in just 1-3 months
- 54% are struggling to pay supplemental insurance premiums, with 77% considering cancelling some of their coverage
- 47% have increased their credit card usage, while 39% have increased their BNPL usage
- 67% said the current state of the economy has negatively impacted their mental health, while 81% said inflation has made them more stressed then usual
- 52% are worried about their job security
- 52% said they are worse off now than they were a year ago, while just 23% said they are better off
It’s the sour mood of the American people that really stands out with the Breeze study.
“Nearly 90% of Americans have cut spending, and many question how much longer they'll be able to provide food for their families or pay the mortgage,” the study noted.
Pain and Repercussions Across the Board
With prices rising at the fastest pace in four decades, coupled with serve market volatility and soaring inflation, U.S. consumers feel they have no choice but to tighten the household budget belt.
“Higher prices seep into just about everything households and businesses buy,” said Gabe Krajicek, CEO of Kasasa, a fintech company in Austin, Texas. “It’s no coincidence that with inflation at a 30-year high, we have also experienced the highest quarterly rise in national consumer debt since 2007.”
The issue is worse than many may think, as overstretched consumers have nowhere to turn.
“Rising prices and inflation are causing consumers to dip further into their lines of credit,” Krajicek said. “They also face rising interest rates, which is just another form of inflation, as the debt accumulated to this point will need to be paid back at progressively higher interest rates.”
Consequently, it’s no surprise that consumers are more hesitant to postpone big-ticket purchases like housing, autos, and appliances. “Inflation is a problem that compounds over time, and even high-income individuals aren’t insulated,” Krajicek noted.
Tips to Try and Stay Ahead of Inflation
How can Americans get a decent grip on rising prices and high inflation? There’s no magic pill for this scenario, but money experts have some ideas.
Rob Stevens, a financial planning thought leader at TIAA, offers these tips for consumers who are maneuvering in hard economic times..
• Be aware of “shrinkflation.” Shrinkflation occurs when companies keep their prices the same, but give you less of their products. “For example, a brand might provide fewer pretzels in a bag or a smaller amount of aluminum foil in a package,” Stevens said. “To mitigate this, buy generic products that are typically slower than name brands to use this tactic.”
• Time your purchases to get better prices. Buy a bathing suit at the end of summer, for instance, or buy a winter coat in the spring, when prices are lower.
• Buy the car you’re leasing. The lease end price was set before current inflation significantly drove up both new and used car prices. That's why it may make sense to purchase your leased car now.
• Besides stretching your budget, make some small cuts that will add up. “Make lunches at home and bring them to work,” Stevens advised. "Cancel some of the streaming services you bought during the quarantine. Reduce your monthly heating and air bill by changing your thermostat so it’s a few degrees cooler in the winter and a few degrees warmer in the summer.”
• Use inflation to your advantage at work. Ask for a raise or update your resume and take advantage of a tight labor market.
Above all, meet with a trusted financial services professional who can help you build a money management plan for the next six to 12 months, after the smoke (hopefully) clears.
“A financial planner can help tailor a budget, helping you reach your short- and long-term goals by finding ways to adjust for inflation, build an emergency fund, and still save for retirement,” Stevens said.
