For a significant portion of the American population, the arrival of payday is anxiously anticipated. According to LendingClub in June, the reality is that 61% of adults are in a situation where they rely on each paycheck to cover their basic living expenses, leaving very little or no surplus funds.
A substantial 72% of Americans express a lack of financial confidence given their current economic status, with over 25% indicating that they may never attain financial stability, as per a Bankrate survey.
Ida Rademacher, the vice president at the Aspen Institute, noted that there exists a considerable number of individuals facing difficulties, even if this is a topic that isn’t readily discussed. She emphasized that if someone finds themselves in a state of precarious financial security, they should know that they are not alone.
This challenge is not a recent development. Back in 2010, Principal Financial Group discovered that 75% of employees were troubled by their financial prospects. Moreover, data from a 2015 report by the Economic Policy Institute reveals that since 1979, wages for the lowest 90% of income earners have only increased by 15%, in stark contrast to a substantial 138% growth for the top 1%. However, there is currently a revitalized emphasis on the apprehension felt by wage earners, attributed to the combination of elevated inflation rates and increasing interest rates.
Based on the latest figures provided by the U.S. Bureau of Labor Statistics, the average worker’s net income after taxes and benefits is approximately $3,308 per month. However, when examining the current costs of essential expenditures, it becomes evident why consumers are feeling financially stretched.
Challenges in Housing Costs and Financial Stability
As of June, the median monthly rent in the United States stood at $2,029, according to data from Redfin. This amount alone represents approximately 61% of the median post-tax income.
Simultaneously, the Council for Community and Economic Research’s records indicate that, during the first quarter of 2023, the median mortgage payment for a 2,400-square-foot house was $1,957 per month, equivalent to around 59% of the median take-home pay.
Inflation is significantly impacting individuals who seek stability in their housing situation,” remarked Kamila Elliott, a certified financial planner and the co-founder and CEO of Collective Wealth Partners in Atlanta. “When there’s instability in your housing, it ripples into uncertainty across all aspects of your financial situation,” she added.
When you couple this with the average monthly expenditure of $690.75 that Americans allocate for food, along with personal medical costs of about $96.42 per month, the cumulative expenses amount to $2,816.17 for individuals who rent and $2,744.17 for those who own their homes.
This sum already represents slightly more than 85% of the median post-tax income for the typical American renter and almost 83% for an average homeowner. These calculations don’t even factor in other vital expenses like transportation, childcare, and debt repayments.
“In the current landscape of financial management in the United States, it often feels like trying to drink from a firehose, making it difficult for many households to establish a customized financial framework,” explained Rademacher. “Numerous households find themselves in a reactive state, focused on making ends meet rather than proactively designing their financial strategies.”
Many Americans eagerly await payday due to financial strain. Around 61% rely solely on paychecks for essentials, with 72% lacking confidence in finances. Challenges span years, worsened by inflation and rates. High housing costs amplify concerns. Financial stability remains elusive for numerous households, prompting reactive strategies.