The US is now technically in a recession. For many economists, two consecutive quarters of economic contraction is sufficient to declare a recession – the US saw this when its economy shrank 0.9% between April and June, this came on the back of a 1.6% decline between January and March.
This economic decline comes as inflation in the US skyrocketed to record highs. It reached 9.1% in June 2022, its highest rate since 1981. This is triggering a cost of living crisis where employees are struggling to afford basic, essential goods.
In this context, there is more bad news. Research by LendingClub and PYMNTS.com found that 61% of Americans are living paycheck to paycheck.
This is up 5.5 percentage points from 55% in June 2021, according to the survey of more than 3,500 consumers in the US.
Even more worryingly, 21% of those surveyed are not just living paycheck to paycheck, but they are also struggling to pay their bills.
The survey also found that 13% (or 33.5 million Americans) spent more than they earnt in the first six months of 2022.
40% of these come from the group who are struggling to pay their bills, as well as living paycheck to paycheck. Whereas just 2.6% of the 39% of Americans not fully reliant on payday had spent more than their means since the beginning of 2022.
PYMNTS.com and LendingClub also found that annual savings dropped 8% (or $517) from May 2022 to $10,757 in June 2022.
It is clear that inflation is impacting workers’ ability to save. PYMNTS and LendingClub identified that 15% had no cash readily available in their bank accounts, while 41% of those unable to pay their bills said they had no savings at all.
High-income workers are also being affected
While it is clear that a recession affects lower-income workers more – they were more likely to have spent more than they earn and have fewer savings – PYMNTS.com and LendingClub’s data identified that living paycheck to paycheck was the most common financial lifestyle in the US.
This is because more and more high-income workers are also struggling with their finances.
52% of those earning between $100,000 and $150,000 were living paycheck to paycheck – this is up 11 percentage points since May 2022.
The figure was 41% for the $150,000 to $200,000 pay bracket, and 26% for the over $200,000 earners. These two groups saw a 6 percentage point increase on May 2022 figures.
Talking about the findings, LendingCorp’s financial health officer Anuj Nayar commented: ”What a difference a year makes. Last summer we were all worried about how quickly the economy would recover.
“Now, as inflation continues its upwards swing, consumers are finding it more difficult to manage spending and are eating into their savings as financial pressures mount.”
The issue is that “consumers living paycheck to paycheck are more likely to have faced financially distressing events in the past three years, including job loss and other income-related disruptions”, according to the report.
The question is what can organizations do to support any employees struggling to make ends meet? Yes, it is an employer’s responsibility to help; if their staff are worried about their finances, are they really going to be able to do their best work?
One option is to raise wages, but unless this keeps up with inflation (which is continuing to increase), that may not make a big difference.
Bonuses might bring some financial relief for workers in all income brackets, but financial wellbeing perks like free advice on how to save in a recession, or discounts on everyday items like the food shop or petrol can also help.
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