Americans are cutting back on dining out, driving, monthly subscriptions and purchasing brand name products in response to higher pricesa recent survey found. These lifestyle changes, however, might not be enough to offset skyrocketing expenses.
Inflation rates remain high, with the consumer price index at an annual rate of 8.3% according to figures released in May. As prices have risen, the personal savings rate in the US has taken a nosedive from 26.6% in March 2021 to 4.4% in April 2022 – a low rate, even compared to pre-pandemic levels.
There’s no doubt this bout of high inflation is affecting consumer spending and attitudes. In a 2022 financial literacy poll conducted by Momentive in partnership with CNBC, more than half of survey respondents reported being under more financial stress now than one year ago.
Consumers were most stressed by gas prices, followed by rent or mortgage costs, food costs and medical or health care costs.
“Our current inflation level appears to be reducing the American public’s buying power and forcing them to reconsider the small trade offs they make every day, like whether to splurge on a dinner out or make something at home,” Laura Wronski, director of research at Momentive, wrote in an email. However, she says, “So far, inflation is not bad enough to cause people to reevaluate big lifestyle questions.”
Poll results also reinforce the ways in which inflation and rising prices have an uneven effect on consumers.
Forty-eight percent of adults surveyed say they think about rising prices “all the time,” for example, and a larger portion of individuals – 55% – with a household income of $50,000 or less report thinking about rising prices all the time compared to higher-earning households.
“Inflation has the most direct (effect) on low-income and working class communities because they are literally feeling the pain of surging gas prices, massive increase in food staples and other day-to-day necessities,” Ramona Ortega, founder and CEO of My Money My Future, wrote in an email. “This trickles down and across family units.”
Young people and those with debt may also struggle to manage their money as the Federal Reserve raises interest rates and prices remain high.
“The last time inflation was the dominant economic issue in the US was the 1970s,” Wronski says, “before the Gen Z and Millennials were born, so they don’t have any lived experiences they can rely on for a comparison to today. Unlike older generations, young adults are also less likely to have savings to fall back on.”
Looking ahead, most consumers anticipate worsening financial conditions. More than 80% say the US will likely face a recession in 2022, and more than 60% say they disapprove of the way President Joe Biden is handling inflation.
If higher prices persist, 52% of consumers say they would consider cutting back on dining out, 42% say they would consider cutting back on driving and 40% say they would consider canceling a trip or vacation.
Before making major lifestyle changes or putting off goals, determining the areas of greatest damage is the first step to crafting a response, says Joe Buhrmann, senior financial planning consultant at eMoney Advisor.
“Like a physician – it’s important to diagnose before prescribing,” he wrote in an email. “Individuals should assess how their plan has been impacted by inflation and other market conditions and then work with their advisor to put actions into motion to shore up any deficiencies. For some, it may mean finding additional dollars to save or invest; for others, it may mean working a year or two longer or considering a phased-retirement.”