Buckle up for a wild show as COVID exits stage left while a new villain — inflation — swoops in from all sides, weakening the purchasing power of even the best-paid American workers.
The seventh edition of the “New Reality Check: The Paycheck-To-Paycheck Report,” a PYMNTS and LendingClub collaboration, examines “The Wealth Divide” and explores the dynamics around the cost of living, challenging notions of who’s really prospering.
Masks are now coming off and lockdowns are fading into memory, but there’s a new word striking fear into the hearts of Americans, and it’s got nothing to do with germs.
“It’s one word: inflation,” Anuj Nayar, financial health officer at LendingClub, said in a PYMNTS interview. “Unfortunately, that’s the reality of what’s going on.”
Looking at the latest New Reality Check report, where we find that the share of consumers earning $100,000 or more and living paycheck to paycheck flew up 6% between December and January, Nayar expressed incredulity at macroeconomic trends.
“Do you remember what it was like back in March of 2020? Everyone was hoarding toilet paper and wiping down their groceries in the garage,” he said. “It’s a different situation now. The cost of everyday essentials are shooting up and that’s hitting everyone’s pocketbook.”
Noting that the price of gasoline has more than doubled in his San Francisco environs, Nayar cited a statistic that the average American burns 90 gallons of gasoline per week.
“That increase over the last couple of months correlates to about a $55 to $60 increase in their weekly expenses if you drive to and from work and everything else,” he said. “That’s just one example, and that feeds through the whole economy.”
He continued, “Gas, eggs, milk — these are the basic things. These aren’t luxuries, these are necessities and they’re all shooting up in price. And if gas is going up, then everything that uses gas, anything that’s being delivered to a restaurant or anything else is going up, and those costs are being passed onto consumers.”
Get the study: New Reality Check: The Paycheck-To-Paycheck Report – The Wealth Divide
A Tangle of Contributing Factors
With the latest New Reality Check Report finding that in January, 64% of all Americans reported living paycheck to paycheck — notably, 48% of consumers earning more than $100,000 per year — Nayar chalked up these difficulties to several converging factors.
He said, “$100,000 in San Francisco and New York is very different from $100,000 in Peachtree City, Georgia. That’s one piece of it. As you have greater finances, you have more flexibility. But in other ways, you often have a lot more [expenses].”
With a nod to that 48% earning over $100,000 and living paycheck to paycheck, Nayar added, “There is a much smaller group that is living paycheck to paycheck and struggling to pay bills. With more money, you do have more flexibility, and obviously struggling to pay bills shoots up as you get down into lower income levels. But it’s affecting everybody.”
Nayar said conditions are such that consumers and companies should steel themselves for another year-plus of inflationary pressure.
“The war in Ukraine is the No. 1 news story,” he said. “No. 2 is the massive increase in gas prices. Nobody’s talking about COVID anymore, on the plus side. I live in San Francisco, [where] a family of four with a household income under $120,000 is considered low income.”
He cited a study finding that “Americans now say they need to make approximately $122,000 a year — more than double the current national average salary — to feel financially secure.”
See also: Nearly Half of Consumers Earning $100,000 a Year Live Paycheck to Paycheck
Debt: “The Last Taboo”
While those in lower-income brackets struggle more than those in the six-figure range, the math isn’t looking great in 2022 for a high percentage of salaried workers right now.
“The sad reality is, yes, people should brace for higher inflation,” Nayar said. “The latest labor report came out recently and said that inflation in February was 7.9% — the highest since 1982. This is February. That’s before the effects of the war in Ukraine have really been [felt] in people’s everyday pocketbook. That’s really not even catching the gas price increases.”
Additionally, the paycheck to paycheck phenomenon is a factor of wages not keeping up with creeping price increases that have been happening for years. It’s only now getting attention.
Nayar continued, “Even though people may be seeing a little bit of an increase in their paycheck, it hasn’t been keeping up with the cost of everyday living expenses for the last 20 years. We’re just seeing this coming to the fore today.
“Housing has shot up incredibly over the last 20 years — education, medical, those are the core expenses that are part of that Maslow’s Hierarchy of Needs. That stuff hasn’t kept up over the last 20 years with people’s wages, and now this is coming into sharp relief,” with some of the biggest monthly cost spikes since the early 1980s.
And that’s not all. Nayar pointed out that Federal Reserve Chairman Jerome Powell “has been pretty clear that despite the downward pressure [on] markets with the war in Ukraine, they’re going to move forward with planned interest rate hikes. That’s going to drive additional [pressure].”
What Nayar is pushing for is a more open dialogue around an issue no one wants to mention.
“Debt is the last taboo that nobody talks about,” he said. “You go on Instagram, you go on TikTok, people are talking about everything, but there’s not that many people saying ‘I’m in debt and I need help.’ That’s something that as a nation and as a community we need to start bringing to the fore and [saying:] it’s OK to talk about the struggles that you’re having.”
Bottom line: “It’s going to be a very volatile 18 months.”
“There’s so many things at play that we’re not going to be able to predict,” Nayar said. “The data is showing that [paycheck to paycheck living] is continuing to increase.”
Read more: 64% of Consumers Lived Paycheck to Paycheck in January, up From 61% a Month Earlier
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