‘Prices won’t come back down’: Americans dip into savings to cope with record inflation

Americans have been accumulating extra savings during the pandemic, but that money is rapidly shrinking due to inflation.

Some 70% of Americans use their savings to cover rising prices, a recent Forbes Advisor poll of 2,000 American adults concluded. Among those surveyed, older people were more likely to say they had left their savings untouched.

In fact, the personal savings rate for April 2022 hit 4.4% – the lowest level since September 2008 – from 6% at the start of the year, according to the Bureau of Economic Analysisa department of the United States Department of Commerce.

Another concern: More respondents told a New York Federal Reserve “consumer expectations survey” that their finances were worse now than they were a year ago. In fact, the average perceived likelihood of missing a minimum debt payment over the next three months rose 0.4 percentage points to 11.1%, according to survey results released Monday.

“Median nominal household spending growth expectations rose sharply to 9% from 8% in April,” the New York Fed said. “This is the fifth consecutive increase and a new series high. The increase was most pronounced for respondents aged 40 to 60 and respondents without a college education.

This drop in savings and increase in spending comes at a time when the pace of the recession is intensifying. Case in point: Nearly 70% of 49 respondents expect the National Bureau of Economic Research to declare a recession next year, according to the FT survey released on Sunday; the survey was conducted with the University of Chicago Booth School of Business’s Initiative on Global Markets.

Although some Americans have been accumulating savings during the pandemic, helped by COVID-related government benefits, those savings appear to be running out as people deal with rising prices.

Laura Veldkamp, ​​professor of finance and economics at Columbia University, suggested people try to renegotiate wages with their employers. “Prices won’t come back down,” she said. “They never do.” Dipping into savings to cope with rising prices is not a sustainable long-term solution, she added.

The rising cost of living is making Americans nervous. Inflation rose 8.6% on the year to May, the highest since 1981. A US consumer confidence survey fell in May to a three-month low of 106.4. It’s one of many surveys indicating a pessimistic outlook people have for both their own finances and the US economy.

For the week ending May 29, food inflation hit a record high of 14.6% from a year ago, according to the latest survey from data firm Numerator. The survey shows that middle-income consumers – those earning between $40,000 and $80,000 a year – are paying the highest price increases of any income level.

“Cutting your budget doesn’t have to be painful.”

— Thomas Scanlon, Financial Advisor at Raymond James Financial

In April, consumer spending increased by $152.3 billion, separate data from the Bureau of Economic Analysis found, with people spending the most money on motor vehicles and auto parts, in addition to food and housing. Compared to the previous month, consumption of gas and other energy sources decreased by $26.9 billion.

On Sunday, AAA pegged the national average at $5.01 for a gallon of gasoline. That’s 20 cents more than a week ago, 60 cents more than a month ago and nearly $2 more than the average of $3.07 a year ago, the data shows. AAA.

Thomas Scanlon, financial adviser at Raymond James Financial in Manchester, Connecticut, said now was a good time to adopt thrifty habits, such as borrowing from the public library instead of buying a book, and looking for free leisure activities such as visits to certain museums and beaches.

“Cutting your budget doesn’t have to be painful,” Scanlon said, “it can be an opportunity to spend quality time with friends and family.”