The U.S. inflation rate jumped to 9.1% in June – the largest inflation percentage since July 1981. (July’s inflation figure is set to be released on Aug. 10.)
The inflation figure has emerged as a flashpoint among economists, politicians and the media, as the chattering class argues over its impact on the economy and whether the U.S. economy is in a recession.
Stewing on the sidelines, meanwhile, is the Great American Consumer, who’s digging even deeper these days to cover basic household costs. Prices have risen so high that U.S. households are raiding their savings accounts to pay the bills and keep food on the table.
Case in point: A new report from New York Life found that as inflation drives the cost of living higher, American adults report drawing an average of $616.73 from their savings to cover higher everyday costs on a monthly basis.
The New York Life survey also showed that macroeconomic factors, including inflation (65%), health-care costs (34%), and the national economic recovery (32%) are the biggest factors whaling away at household budgets. All are deemed as “most impactful” to Americans’ personal sense of financial security.
“The financial picture for many Americans has changed significantly since the start of the year, and we’re seeing the positive expectations many Americans held about their finances heading into 2022 start to fade,” said Aaron Ball, senior vice president and head of insurance solutions, service and marketing at New York Life.
Savings Becoming “Depleted”
Financial gurus say that any extended household economic pain can do lasting damage to Americans scrambling to stay afloat money-wise.
“If consumers make it a habit to take from their savings, important savings for expenses and emergencies will be depleted,” said Ken Tumin, founder at DepositAccounts.com.
“This will lead to more consumer debt, which will be especially painful due to rising interest rates. Lower savings for emergencies combined with more debt could put many consumers in a financial hole and make building for retirement impossible.”
In fact, the New York Life Survey points out that nearly two-thirds (64%) of Americans said in July that they could save enough money to last their entire lives. That’s down from 74% of U.S. adults who said this in January. The report also cited large declines in the numbers of Generation Zers and Millennials who say they’ll retire on schedule.
The household-saving picture grows even gloomier if a sudden event pounds another dent in personal savings accounts.
“Using savings to offset a rising cost of living can only last for a short time,” said Herman “Tommy” Thompson Jr., a certified financial planner with Innovative Financial Group in Atlanta. “Eventually, a family has to reduce its spending or increase its income."
Unfortunately, that personal-savings adjustment is usually caused by an unforeseen expense.
“A sudden health event, a car accident, or a dead HVAC unit show up at the worst possible time and wipe out the remaining savings,” Thompson said.
“At this point, the family has no choice but to change their spending habits or raise their debt. According to the Federal Reserve, consumer credit increased by $40.15 billion in June.”
Time to Cut Back and Get Creative With Spending
For Americans dismayed to see their household savings dwindle, money experts advise tightening the belt and getting creative with spending.
“Reexamine your budget and determine if you can adjust discretionary spending downward,” said Michael Liersch, head of advice and planning for Wells Fargo Wealth and Investment Management in New York.
“For example, learn to negotiate with discretionary providers, such as cellphone providers, cable/streaming services, gyms, etc., especially if those companies are offering negotiable promotions for 'new' customers.”
It's also a good idea to look for products that can be substituted for higher-priced items, such as store-brand grocery items. “Plus, the holiday season is still several months out, so consider starting to shop now to avoid hefty bills at the end of the year,” Liersch told TheStreet.
If you’re currently evaluating big purchases, invest in quality products that likely require less maintenance and last longer.
“In doing so, there’s a reduced likelihood to have to replace big-ticket items in the near-term while prices are rapidly rising,” Liersch added. “Alternatively, consider deferring the purchase, if possible. After all, do you 'need' to replace your car or refrigerator right now?”
