Here’s why Americans can’t stop living paycheck to paycheck (From CNBC) [3 Articles]
~ Saturday, August 19, 2023 Blog Post ~
By Juhohn Lee, August 17, 2023
Watch the video to learn more about why financial security feels so impossible in the U.S. today:
https://www.cnbc.com/video/2023/08/17/why-americans-cant-stop-living-paycheck-to-paycheck.html
For many Americans, payday can’t come soon enough. As of June, 61% of adults are living paycheck to paycheck, according to a LendingClub report. In other words, they rely on those regular paychecks to meet essential living expenses, with little to no money left over.
Almost three-quarters, 72%, of Americans say they aren’t financially secure given their current financial standing, and more than a quarter said they will likely never be financially secure, according to a survey by Bankrate.
“There are actually millions of people struggling,” said Ida Rademacher, vice president at the Aspen Institute. “It’s not something that people want to talk about, but if you were in a place where your financial security feels superprecarious, you’re not alone.”
This struggle is nothing new. Principal Financial Group found in 2010 that 75% of workers were concerned about their financial futures. What’s more, since 1979, wages for the bottom 90% of earners had grown just 15%, compared with 138% for the top 1%, according to a 2015 Economic Policy Institute report. But there’s now a renewed focus on wage-earner anxiety amid higher inflation and rising interest rates.
The typical worker takes home $3,308 per month after taxes and benefits, based on the latest data from the U.S. Bureau of Labor Statistics. But when you take a look at the cost of some of the most essential expenses today, it’s easy to see why consumers feel strained.
The median monthly rent in the U.S. was $2,029 as of June, according to Redfin. That amount already accounts for about 61% of the median take-home pay.
Meanwhile, the Council for Community and Economic Research reported that the median mortgage payment for a 2,400-square-foot house was $1,957 per month during the first quarter of 2023, which accounts for about 59% of the median take-home pay.
“Inflation is really hurting individuals having stability in their housing,” said certified financial planner Kamila Elliott, co-founder and CEO of Collective Wealth Partners in Atlanta. She is a member of CNBC’s Financial Advisor Council. “If you have uncertainty in your housing, it causes uncertainty everywhere.”
Combine that with the average $690.75 Americans spend each month on food and out-of-pocket health expenditures that cost the average American $96.42 monthly, and you get a total expense of $2,816.17 for renters and $2,744.17 for homeowners.
That amount already accounts for just over 85% of the median take-home pay for average American renters and almost 83% for an average homeowner. This is excluding other essential expenses such as transportation, child care and debt payments.
“So much of managing your financial life in America today is like drinking from a firehose that many households are not able to show up and impose a framework of their own design onto their finances,” said Rademacher. “Many are still in this reactionary space where they’re just trying to figure out how to make ends meet.”
Sources:
https://www.cnbc.com/2023/08/17/heres-why-americans-cant-stop-living-paycheck-to-paycheck.html
https://twitter.com/CNBC/status/1692291460882940242/
Article #2: Americans Have Almost Depleted Excess Savings, SF Fed Study Says (From Bloomberg)
By Laura Curtis, August 17, 2023
- Pandemic savings may finally be spent by end of third quarter
- Recent revisions to government data have changed the picture
Excess savings US households built up during the pandemic will probably be exhausted in the current quarter, according to research from the Federal Reserve Bank of San Francisco, removing a key support for consumer spending that has boosted the US economy this year.
“Our updated estimates suggest that households held less than $190 billion of aggregate excess savings by June,” San Francisco Fed researchers Hamza Abdelrahman and Luiz Oliveira said in a blog post published Wednesday on the bank’s website.
“There is considerable uncertainty in the outlook, but we estimate that these excess savings are likely to be depleted during the third quarter of 2023.”
Earlier this year, Abdelrahman and Oliveira published research estimating $500 billion of excess savings remained on household balance sheets as of March 2023, after peaking at $2.1 trillion in August 2021.
But revisions to government data since then have changed the picture.
“The Bureau of Economic Analysis recently revised its previous estimates to show household disposable income was lower and personal consumption was higher than previously reported for the fourth quarter of 2022 and first quarter of 2023,” the pair said in Wednesday’s blog post.
“The combined revisions brought down the Bureau’s measure of aggregate personal savings by more than $50 billion. In addition, second-quarter data indicate that household spending continued to grow at a solid pace.”
By most accounts, excess savings accumulated during the pandemic have helped the US economy continually defy forecasters’ expectations for a downturn this year, even as the Fed has embarked on the most aggressive cycle of interest-rate increases in several decades.
At their July 25–26 policy meeting, central bank officials acknowledged the impact, while also suggesting that the dynamic could soon fade, according to minutes of the gathering published Wednesday.
“Tight financial conditions, primarily reflecting the cumulative effect of the committee’s shift to a restrictive policy stance, were expected to contribute to slower growth in consumption in the period ahead,” the minutes said.
“Participants cited other factors that were likely leading to, or appeared consistent with, a slowdown in consumption, including the declining stock of excess savings, softening labor market conditions, and increased price sensitivity on the part of customers.”
©2023 Bloomberg L.P.
Sources:
https://twitter.com/BW/status/1691935380277231985/
Article #3: When student loan payments resume, 56% of borrowers say they’ll have to choose between their debt and buying groceries (From CNBC)
By Kamaron McNair, August 13, 2023
Federal student loan payments are coming back, and they’re going to wreak havoc on borrowers’ budgets.
Interest accurals resume on Sept. 1 and payments will be due in October for the first time in over three years.
But over half of borrowers (56%) say they will be forced to choose between making their loan payment or covering necessities, like rent and groceries, when the pandemic forbearance ends, according to a new survey from Credit Karma.
The finding is in line with what the Biden administration and many experts have long feared. Though the brunt of the pandemic is in the rearview mirror and inflation is down from its meteoric rise last year, resuming student loan payments is likely going to hurt millions of households that had found some financial security over the past three years.
Cutting back on nonessential spending will be the most typical way borrowers will adjust to make their student loan payments, according to Credit Karma. But there are only so many expenses you can eliminate.
Here’s how borrowers are planning to make ends meet, along with some tips on creating more room in tight budgets.
Even higher earners will struggle when payments resume
Unsurprisingly, 68% of borrowers with household incomes under $50,000 say they’ll have to choose between keeping up with their loan payments and buying necessities, Credit Karma finds.
But a large portion of high earners also expect to struggle — 45% of borrowers with household incomes of $100,000 or more say they’ll be forced to make those hard choices.
Other debts may be part of the issue. More than 50% of borrowers say they’re struggling to pay auto loans, mortgages, credit card balances or other bills, according to Credit Karma.
One option that could especially help lower-income borrowers is to apply for an income-driven repayment plan. Under the new Saving on a Valuable Education IDR plan, families of three or more who earn $50,000 or less may qualify for a $0 monthly payment, for instance.
Still, only 34% of borrowers say they’ll apply for an IDR plan to lower their monthly payments, according to Credit Karma.
Nearly half of borrowers expect to go delinquent
Though 72% of borrowers say they will prioritize their student loan payments over other debts, many still expect they won’t be able to make payments and could see their loans enter delinquency. In fact, 45% of borrowers expect their loans to go delinquent when the forbearance ends, the survey found.
The good news is, that will take a while.
The Biden administration has instituted a 12-month on-ramp period that allows borrowers to miss or make late payments on their loans without being considered delinquent or getting reported to credit agencies until the end of September 2024.
Still, interest will continue accruing. Borrowers should make every effort to stay on top of all their obligations to avoid more financial turmoil, such as a drop in credit score or bills getting sent to collection agencies.
3 tips to manage student loan repayment and other bills
Many federal borrowers hoped to see some of their debt forgiven before payments resumed, which could be contributing to the stress of the forbearance being lifted. But while they wait for the possible advent of a new forgiveness plan, they’ll have to find ways to manage repayment.
Here are three tips to help you get ready for repayment and keep all your debts in good standing.
1. Use federal loan protections to your advantage
It might not feel like federal student loans are your friends, but they do come with a little more leniency than private loans.
From the on-ramp period to IDR plans to forbearance and deferment options, there are a number of resources at your disposal to keep your loans in good standing even if you can’t afford your monthly payment.
Talk to your loan servicer as soon as possible to find the best solution for your situation.
2. Negotiate bills like rent
You may be able to lower your monthly rent simply by asking. While it’s not a foolproof method, it doesn’t hurt to try.
It helps if market research shows rent has decreased in your area or that you’re paying more than people in similar units near you. But even if that’s not the case, you may still be able to get a better deal or secure other benefits like upgrades or repairs.
Other bills you might be able to negotiate include your cellphone plan, your cable and internet service, and medical bills.
3. Audit your discretionary spending
A relatively simple way to lower your monthly spending is to take stock of all the subscriptions you’re paying for, decide which ones are worth it to you and cancel the rest.
Streaming services may be a prime place to start, especially with Disney+ and Hulu announcing price increases. While an extra dollar or two may not break your budget, if you subscribe to several different platforms, your total spending could have increased pretty significantly in the past year.
Sources:
