Americans Are Saving Less and Relying More on Debt to Keep Pace with Inflation
July 27, 2022
With inflation surging at the fastest level in more than 40 years, American households are having a hard time keeping up with rapidly climbing prices. In a troubling sign for the economy, several recent studies have found that Americans are saving less, curbing spending, and amassing debt to cover household essentials.
A recent study by American Consumer Credit Counseling found that, as of the second quarter of 2022, 48% of consumers say that the rising costs of basic necessities have impacted their family’s lifestyle. That’s a steep increase from the 39% of Americans who felt the same way in the first quarter.
The biggest impact inflation has had is on households’ ability to save. The study found that nearly 40% of consumers cannot put any money at all into savings, while about 19% said they have had to reduce their savings rate.
In order to make ends meet, Americans are increasingly turning to debt. A separate study from Lending Tree found that 43% of Americans expect to add to their debt in the next six months. The report found that most will rely on credit cards to bridge the gap between their income and cost of living and that young Americans and parents of young children are most likely to tap their lines of credit.
Personal consumption accounts for roughly 70% of all economic activity in the U.S., so consumers curbing their consumption as prices continue to climb would be a major drag on the economy.