Household debt rises as more Americans live paycheck to paycheck

There is no doubt that the financial security of millions of Americans has taken a major hit due to the current environment of high inflation, which has reached a forty-year high of over 9%.

In fact, according to CNBC, a new report by PYMNTS found that in June, 61% of Americans, or about 157 million adults, were living paycheck to paycheck. This figure is up from 58% recorded in May and 55% from a year ago.

Even the highest earners are not immune to the continued sting of inflation. The report found that among people earning $200,000 or more, 36% said they lived paycheck to paycheck. A recent, separate survey by consulting firm Willis Towers Watson found that 36% of American workers with annual salaries of six figures or more live from salary to salary, twice as much as in 2019. Among those earning between $50,000 and $100,000 a year, 34% live from salary to salary, while 52% do the same if they have incomes below $50,000.

“Employees at higher compensation levels are not immune to living paycheck to paycheck,” said Mark Smrecek, Financial Wellness Market Leader for North America. North at Willis Towers Watson, to the economic newspaper.

Meanwhile, as CNN reports, more and more Americans are racking up huge amounts of credit card debt as they struggle to cope with the high cost of living.

According to new data from the New York Federal Reserve, US household debt topped $16 trillion for the first time in the second quarter. And even as borrowing costs continue to climb north, credit card balances grew by $46 billion in the last quarter alone. Over the past 12 months, credit card debt has jumped $100 billion, or 13%, the biggest increase in more than two decades.

“The impacts of inflation are apparent in high borrowing volumes,” the New York Fed researchers wrote in a blog post.

In an effort to tame these lingering inflationary pressures, the Federal Reserve last week raised its short-term policy rate by three-quarters of a percentage point for a second straight month. The unanimously approved rate hike now puts the federal funds rate in a range of 2.25% to 2.5%, the highest level since December 2018.

In its post-meeting statement, the Federal Open Market Committee responsible for setting rates noted that “inflation remains elevated, reflecting pandemic-related supply and demand imbalances, rising food prices and energy and broader price pressures”.

Fed Chairman Jerome Powell left the door open on the central bank’s next move at the September meeting, saying it would be largely driven by what the data shows. “As the monetary policy stance tightens further, it will likely become appropriate to slow the pace of increases as we assess how our cumulative policy adjustments affect the economy and inflation,” he said. .

Markets expect the Fed to hike aggressively this fall and possibly start cutting rates by next summer.

Ethen Kim Lieser is a Washington State-based finance and technology editor who has held positions at Google, The Korea Herald, Lincoln Journal Star, AsianWeek, and Arirang TV. Follow him or contact him on LinkedIn.

Picture: Reuters.

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