- 80% of Americans have experienced a cost of living creep, and 66% say it’s holding them back from achieving their financial goals
- Nearly 60% feel it’s impossible to pay down debt because of elevated interest rates
- 59% of people don’t believe their income will ever catch up to the cost of living
Lately there’s been a lot of talk about the economy being in better shape as experts point to common economic indicators like a low unemployment rate and more moderate inflation. Yet, many Americans don’t seem to share that same positive outlook as they face a high cost of living, propped up by sustained, elevated interest rates and high prices for necessities such as groceries and rent.
According to a new study conducted by Qualtrics on behalf of Intuit Credit Karma, more than three-quarters of Americans (80%) have experienced a “cost of living creep.” For the purpose of this study, cost of living creep is defined as the need to spend more money to afford the same amount of goods and services as one did in the past. For example, having to spend more money to afford the same basket of groceries now compared to a few years ago.
Of those who experience a cost of living creep, 66% say it’s holding them back from achieving their financial goals, and more than half (55%) say they have taken on debt and are unable to save money as a result of the higher cost of living. Other ways the rising cost of living has impacted Americans’ financial goals include not being able to save for retirement (36%), not being able to afford everyday expenses (27%) and not being able to buy or maintain a car (21%). The inability to make financial progress could be impacting people’s happiness, especially for the 64% of people who say the rising cost of living negatively impacts their mental health.
These lived experiences have 64% of respondents admitting that they are sick of hearing that the economy is strong when they’re struggling financially, while another 68% don’t believe that economic statistics (i.e. inflation or job numbers) accurately represent the current cost of living. Zooming out, 79% of Americans say they are concerned about the current state of the economy.
Interest rates have a lot to do with Americans’ economic reality
Elevated interest rates are putting a damper on Americans’ wallets, impacting how they feel about the state of their finances. In fact, 74% of respondents say that elevated interest rates play a role in the cost of living creep that they experience, and 59% say it feels impossible to pay down debt because of the state of interest rates. Interest rates carry a lot of weight in terms of peoples’ perception of the economy. About half (51%) of respondents believe that once interest rates fall, they expect the cost of living creep they experience to ease.
Wage growth fails to provide financial stability
More than half (52%) of Americans say that their salaries or wages have not kept pace with the cost of living – regardless of whether they’ve seen their income increase or not. For the 43% of Americans who have received a salary or wage increase in the last two years, 55% say that they’re still struggling to afford necessities such as rent, groceries and bills, and 59% don’t believe their income will ever catch up to the cost of living.
The cost of living creep aftermath: savings bust
The cost of living creep is hitting Americans’ savings rate hard. A whopping 37% of respondents say that they are not putting any of their monthly income toward savings, while 34% are putting 1%-10% of their monthly income into savings.
The inability to save money likely has a lot to do with the fact that peoples’ money isn’t going as far as it used to. A majority (80%) of Americans feel like their money doesn’t go as far as it did three years ago. In terms of how much additional money they’d need each month to afford the same standard of living three years ago, nearly a quarter (24%) report needing an additional $500-$999 per month, 22% say they’d need an additional $1,000-$1,499 and 18% say they’d need as much as $2,000 or more.
In lieu of increasing their monthly income, Americans are making sacrifices to make ends meet amid the rising cost of living, such as taking on debt (32%), depleting their savings (31%), avoiding getting medical care (22%), pulling money from their retirement savings (18%), opening more credit cards (17%) and even defaulting on their loans (9%).
Cost of living struggles exacerbate for those providing financial support to family
The financial squeeze is even more pronounced for the 42% of respondents who also financially support their families. Of those, 59% say that due to the rising cost of living, they now provide even more financial support to their families than they were before, and sadly, 56% say that doing so has prevented them from achieving their financial goals. For instance, 44% of those who financially support their families say they are postponing their retirement date to do so, and 64% say they’ve had to sacrifice their own happiness.
“We’ve certainly seen the economy bounce back in various ways, but most Americans still face a higher cost of living now than they did three years ago,” said Courtney Alev, consumer financial advocate at Credit Karma. “While higher costs for necessities like rent and groceries likely play a role in people’s sourness on the economy, our study shows that Americans may be most sensitive to the fact that due to higher borrowing costs, their money doesn’t go as far as it once did. The good news is that interest rates will eventually fall, and consumers expect that to provide them with some financial relief. Until then, they should be mindful of their non-essential spending so they’re not racking up high-interest credit card debt that they cannot afford to pay off.”
Methodology
This survey was conducted online within the United States by Qualtrics on behalf of Intuit Credit Karma on May 7 to May 13, 2024 among 2,011 adults ages 18 and above.