Americans Blame Rising Living Costs for Downward Financial Mobility

Increasing numbers of consumers are finding it difficult to make ends meet. As a result, many have experienced downward financial mobility. In fact, 27% of consumers overall experienced a downgrade in their financial lifestyle in the last two years. Rising living costs, employment changes, major life events and health issues have placed many consumers on downward trajectories.

After reaching a high of 9.1% in July 2022, inflation has gradually decreased, dropping to below 3% as the second half of 2024 began.¹ As of August 2024, the overall inflation rate sits at 2.5%, the smallest 12-month increase since February 2021. Yet, among its components, inflation rates for transportation and shelter increased significantly this month. Food and apparel also saw increases.

Nonetheless, consumers remain optimistic: Two in five expect improved financial circumstances in the next two years. In addition, nearly half of downwardly mobile consumers expect they will bounce back.

These are just some of the findings detailed in this edition of “New Reality Check: The Paycheck-to-Paycheck Report,” a PYMNTS Intelligence exclusive report. This edition, How Consumers Experience Financial Lifestyle Mobility, examines the financial lifestyles of U.S. consumers and explores how inflationary pressures combined with life events impact their financial standing and overall sentiment. It draws on insights from a survey of 2,231 U.S. consumers conducted from Aug. 1 to Aug. 11 and an analysis of other economic data.^{2, 3, 4}

• What’s at Stake
• Key Findings
• Conclusion
• Read More
• Methodology

What’s at Stake

PYMNTS Intelligence finds that the share of consumers living paycheck to paycheck increased by 2 percentage points in the last month. As of August 2024, 65% of consumers lived paycheck to paycheck, up 5 percentage points compared to August 2023. This continues the volatile changes that have been evident since January.

The share of paycheck-to-paycheck consumers living without difficulty is currently at 40% — the same as this time last year. Meanwhile, the share of paycheck-to-paycheck consumers struggling to pay bills grew. The increase in this segment accounts for the rise in the overall share of paycheck-to-paycheck consumers.

In August 2024, 25% of paycheck-to-paycheck consumers struggle to pay their bills, a high not seen since September 2021. In fact, the share of consumers who struggle to pay their monthly bills has steadily risen since February 2024. This increase among struggling paycheck-to-paycheck consumers suggests that inflationary and economic pressures continue to impact consumers’ financial standing.

Key Findings

More than one-quarter of consumers experienced downward financial mobility the last two years.

PYMNTS Intelligence’s data shows that 43% of consumers changed their financial lifestyle in the last two years. This includes 27% of consumers who reported downward financial mobility and 16% who reported an upgrade.

Millennials and consumers annually earning less than $50,000 are the most likely to report downward financial mobility in their financial lifestyle, each at 34%. Meanwhile, Generation Z consumers were the most likely to see an upgrade, at 40%. Baby boomers and seniors were the most likely to see no change. These findings indicate differences that are based on consumers’ stage of life. Younger consumers’ incomes may be on the rise, while income and wealth grow more stable and predictable with age.

Changes in financial lifestyles are most evident among paycheck-to-paycheck consumers. More than half of this segment experienced financial mobility in the last two years.

The paycheck-to-paycheck lifestyle is not as far away as one may think. In fact, 25% of paycheck-to-paycheck consumers report they have not lived paycheck to paycheck within the last two years. Among paycheck-to-paycheck consumers struggling to pay bills, 40% lived paycheck to paycheck without difficulty in that time. However, 45% have been chronically stuck in this financial lifestyle.

Furthermore, one in four consumers not currently living paycheck to paycheck have recently lived a paycheck-to-paycheck lifestyle. Moreover, 32% of paycheck-to-paycheck consumers who comfortably pay bills did not live paycheck to paycheck at some point in the last two years. Among consumers struggling to pay bills, 16% report they did not live paycheck to paycheck in the last two years. That so many consumers have experienced downward financial mobility in their financial lifestyle suggests that inflationary pressures put many consumers just one or two mishaps away from financial constraints.

The rising cost of living led to consumers’ downward financial mobility, while better financial management led to an upgrade.

The rising cost of living was the top reason consumers experienced downward financial mobility. Among consumers who experienced downward mobility, 52% cited the rising cost of living as a reason. In fact, 33% said it was the top factor driving their downgrade. Employment changes ranked second, at 35%, with 20% citing it as the top reason for their downgrade. Major life events and health issues were also key drivers. These issues had similar impacts on consumers across financial lifestyles.

Improved financial management and debt reduction (43%) tops the list of reasons consumers experienced an upgrade in financial lifestyle. In fact, 29% of consumers cite this as the top reason. Employment changes and increased salaries (39%) follows, with 19% citing this as the top reason for an upgrade. Adding a household income earner, relocating to cheaper areas and life events also played a role.

Paycheck-to-paycheck consumers with issues paying their monthly bills were nearly three times as likely to report that adding an additional income earner to the household and reductions in household dependents improved their household finances. Paycheck-to-paycheck consumers who live comfortably were more than twice as likely to report that investment gains drove their upward mobility.

Gen Z consumers saw benefits from completing higher education and career advancement. Generation X consumers noted that relocating to cheaper areas and having less costly living expenses played the biggest role in their increased financial freedom.

Nearly half of downwardly mobile consumers expect to bounce back financially this year.

Few consumers expect worsened financial circumstances, and this holds true across demographics. This indicates downward mobility comes as a surprise to most.

Many consumers expect upward financial mobility. PYMNTS Intelligence’s data shows that 39% of consumers overall expect their financial standing to improve in the next two years. Gen Z consumers, at 57%, are the most optimistic that their financial standing will improve in the next two years. Also, 47% percent of paycheck-to-paycheck consumers believe their financial circumstances will improve in the next two years. Even among downwardly mobile consumers, many expect to bounce back quickly: 47% expect their situation to improve within a year. This suggests that these consumers remain optimistic and continue to look for ways to improve their financial situation.

However, data also shows that 56% of consumers expect their financial standing to remain unchanged in the next two years. This is not always a good thing. In fact, this share can be broken down into personas that illustrate how financial standing correlates with financial mobility.

We find, for instance, that 39% of consumers who do not expect a change in financial lifestyle have been stable savers in the past two years. Meanwhile, 22% have been stable non-savers, while just 12% have been chronic strugglers. This emphasizes our finding that more financially stable consumers experience less financial mobility than those struggling financially.

Relocation can bring upward financial mobility, yet those who cannot relocate rely more on salary increases.

Consumers expect to improve their financial situation in the next two years for similar reasons as those who experienced upward mobility. For example, 40% of consumers cite employment changes and salary increases. Another 40% cite improved financial management and debt reduction. Approximately one-quarter of each group cites one of these as the top reason.

There are differences across demographics, of course. For instance, high-income consumers also see investments and relocating to cheaper areas as key to a better financial future. Meanwhile, lower-income consumers seek to find higher-paying jobs, improve their financial management and lower living costs. Paycheck-to-paycheck consumers are focusing on the same goals. Younger consumers expect most of their upward financial mobility will come from developing their careers. Older consumers, on the other hand, look to financial windfalls, reduced living expenses and retirement.

These differences suggest that more financially secure consumers — i.e., those with high incomes or who are older — have more options. While these consumers have the ability to relocate and choose a more sustainable lifestyle, those more financially constrained consumers — those with lower incomes or members of Gen Z — are more stuck and have to hope for wage increases to improve their financial standing.

Conclusion

As consumers continue to experience a seemingly ever-rising cost of living, many struggle to live within their means. As a result, the share of consumers living paycheck to paycheck is rising. Unfortunately, an increasing share of those struggling to pay bills drives this increase.

This is a reality of financial lifestyle mobility. Nonetheless, many consumers expect their financial situation will improve, whether experiencing downward financial mobility, upward mobility or no change in lifestyle. As inflationary pressures continue, consumers do what they can to make ends meet. This includes finding ways to better manage their finances and reduce debt. Many are set on getting better-paying jobs and investment opportunities to put them on a path of financial stability. Many high-income and older consumers have the freedom to relocate to manage their spending. This suggests upward mobility varies based on current financial standing.

Read More

PYMNTS Intelligence provides leading coverage of the trends in consumers’ financial lifestyles in the face of ongoing inflation. For more, read our recent data reports chronicling the issues paycheck-to-paycheck consumers face.

• Higher Perception of Inflation Drives Paycheck-to-Paycheck Consumers to Trade Down
• Gen Z Is Leaving the Nest, But Are They Ready to Fly?
• Emergency Expenses Break the Bank for Paycheck-to-Paycheck Consumers
• Paycheck-to-Paycheck Foodies Skimp on Beds, Splurge on Spreads
• Why 60% of Gen Z’s Live Paycheck to Paycheck

Methodology

“New Reality Check: The Paycheck-to-Paycheck Report: How Consumer Experience Financial Lifestyle Mobility,” a PYMNTS Intelligence exclusive report, draws on insights from a survey of 2,321 U.S. consumers conducted from Aug. 1 to Aug. 11. The Paycheck-to-Paycheck series also expands on existing data published by government agencies, such as the Federal Reserve and the Bureau of Labor Statistics, to provide a deep look into the core elements of American consumers’ financial wellness: income, savings, debt and spending choices. Our sample was balanced to match the U.S. adult population in a set of key demographic variables: 51% of respondents identified as female, 33% were college-educated and 38% declared incomes of more than $100,000 per year.

<sup>1. [Author unknown. Consumer Price Index. U.S. Bureau of Labor Statistics. 2024. https://www.bls.gov/cpi/. Accessed September 2024.]↩
2. [Author unknown. Consumer Credit – G.19. Board of Governors of the Federal Reserve System. 2024. https://www.federalreserve.gov/releases/g19/current/. Accessed September 2024.]↩
3. [Author unknown. Current Employment Statistics – CES (National). U.S. Bureau of Labor Statistics. 2024. https://www.bls.gov/ces/. Accessed September 2024.]↩
4. [Author unknown. Consumer Price Index Summary. U.S. Bureau of Labor Statistics. 2024. https://www.bls.gov/news.release/cpi.nr0.htm. Accessed September 2024.]↩</sup>