Reality check: New report finds 3 in 5 U.S. consumers now living paycheck to paycheck amid ongoing, record inflation

The relentless march of price increases on virtually all goods and services amid ongoing, record U.S. inflation is taking an increasing toll on personal and family budgets. And, according to new data, pushing a growing number of Americans into paycheck-to-paycheck subsistence.

U.S. consumers are currently in a bleak, economic nether region. A series of aggressive benchmark rate hikes by the U.S. Federal Reserve have driven up the cost of debt but have yet to make significant impacts on soaring prices. So, while mortgage rates are approaching 7% and the average interest rate on credit cards hit 17.96% last month, the highest rate since 1996 according to Bankrate.com, overall annual inflation came in at 8.3% in August, a rate far above the Fed’s 2% target.

Increased costs for basic necessities are the major inflation driver, with shelter, food and medical care all seeing continued price increases in August. The food index, which captures price changes in both groceries and food purchased away from home, was up 11.4% in August over the same time last year, the biggest year-over-year increase since 1979, according to the Labor Department. Groceries alone are up 13.5% in the last year.

Waiting for the next check

A new national report from PYMNTS.com and LendingClub found that 60% of U.S. consumers were living paycheck to paycheck as of August 2022. And it’s a reality that’s been trending upward over time, increasing from 57% in September 2021.

Those with lower incomes are struggling the most, but even consumers in higher income brackets are finding themselves watching for that next check to cover their bills.

According to report data, 45% of those earning more than $100,000 per year were living paycheck to paycheck in August, a 7 percentage-point increase from 38% in September 2021. Among consumers earning between $50,000 and $100,000 annually, 62% were living paycheck to paycheck, up from 57% in September 2021. And, as of August, 74% of consumers earning less than $50,000 were living paycheck to paycheck, a slight decrease from 78% in September 2021.

Not enough to pay the bills

Not surprisingly, along with a growing number of people whose earnings and expenses are breaking even, or less, every pay cycle, an increasing number of individuals and families are struggling to pay their bills on time.

A LendingTree report published earlier this month found 62% of U.S. consumers are struggling to pay at least one of their monthly bills, and 32% have paid a bill late in the past six months. Among those who were late on bills, 61% said it was simply a matter of not having enough money to cover their costs.

When it comes to choosing which bills not to pay when money is tight, 46% of those who have been late on paying bills recently said they put off payments for utilities service. Thirty-nine percent of that group delayed a credit card payment and 34% bumped paying their internet or cable bills.

LendingTree chief credit analyst Matt Schulz said many consumers are scaling back spending and making budget adjustments, but, in the face of record inflation, sometimes even those tactics are not sufficient to keep up.

“Life is getting more expensive by the day and it’s shrinking Americans’ already tiny financial margin for error down to zero,” Schulz wrote in the report. “Unless they’ve been able to increase their income, millions of Americans have had to make sacrifices because of inflation to pay the bills.”

And Schulz noted that in light of the likelihood of ongoing inflationary pressures in the near term, covering a bill on credit or through some other quick-financing mechanism is going to be problematic.

“Perhaps the worst part is that inflation likely isn’t going anywhere anytime soon,” Schulz said. “That means that short-term quick fixes won’t cut it.”

How much is inflation really adding to monthly bills?

Last month, statewide polling conducted by the Deseret News in partnership with the Hinckley Institute of Politics had consumers put a price tag on how much inflation was adding to their monthly expenses.

When asked “how much more per month are you paying for basic goods,” 32% of survey participants said they were spending $201-$400 more per month now, 28% said they were spending $101-$200 more and 22% said increased prices were impacting their budgets by more than $400 per month.

While 6% said they weren’t sure how much more they were spending, 12% estimated their extra costs for basics at $0-$100 per month.

The survey also found that nearly half of respondents report their overall financial health is on the decline.

When it comes to comparing their current financial well-being to a year ago, 47% of respondents said they were worse off, 31% said they were better off and 22% reported their financial health was unchanged in the past year.