OpinionWhy Americans are so pessimistic about their finances
The job market is strong. Inflation has moderated. Yet even before the recent bank turmoil, half of Americans said their financial situation was worse than it had been a year earlier, the most negative reading since the Great Recession, according to Gallup. Lower-income Americans are especially dour, even though their wages appear to be rising the fastest.
What’s going on?
Politicians and pundits have offered a variety of theories to explain the disconnect between the red-hot economy and icy-cold consumer sentiment, including blaming the media. My colleagues and I were curious: Was something happening with inflation and other economic trends that the headline measures somehow haven’t captured?
To answer this question, we interviewed families across the country about their evolving finances. Memories can be hazy — do you remember exactly what you paid for milk a year ago? — so we also asked families to provide documentation of their expenses. We ended up with a lot of data. A lot.
|Dairy, Eggs and Meat|
|BBK Rib Meal||$6.89||$9.99||+45%|
|Bourbon Chicken Skillet||$10.19||$10.99||+8%|
|Dairy, Eggs and Meat|
|Chicken Twin Pack Fryers||$11.66||$14.43||+24%|
|Dairy, Eggs and Meat|
Meet three families who agreed to share some of their typical expenses with us, as captured through the receipt-scanning app Fetch.
Their receipts offer a snapshot of how each household has experienced inflation in the past couple of years. The prices of many frequently purchased items have increased, ranging from 2 percent to 115 percent.
Here’s a quick comparison of the year-over-year prices for fruits and vegetables. Families experienced inflation differently, but they all got pinched at least a little — just look at evolving prices for onions, tomatoes and celery.
For milk, eggs and chicken breasts, the price increase was much more extreme than overall inflation numbers.
Every family also mentioned that they had cut back on spending at restaurants because of inflation. Here are the only repetitive dine-out orders we found.
Combing through their receipts allows us to see where the pain points are for specific families. Additional conversations shed light on how their shopping habits have also changed: when they’ve switched stores, opted for cheaper brands or otherwise scaled back. Then, to see the bigger picture, we matched up national wage and spending trends for different income groups.
[Henry Olsen: Why are so many Americans sour on the economy? Look at this new data.]
Our conclusion: Sure, inflation may be less severe than it was a few months ago, but it’s still very much weighing on Americans, especially those in lower-income households. And it’s hurting more than their wallets; constantly monitoring price changes and having to pay attention to how and where they spend money carries mental costs, too. This psychological tax of inflation is real, and lingering, even as headline data show that actual growth in prices is moderating from last year’s historic highs.
To get a sense of how some lower-income households have adapted to recent economic conditions, let’s meet Doug Briggs.
We’ve had to cut back on going out as often as we did because the food prices everywhere have gone up.”
Doug Briggs, Henderson, Ky.
Briggs lives with his elderly mother, and both have fixed incomes: He receives disability benefits, and she receives Social Security. Together, the two have about $25,000 coming in through benefits and retirement distributions. That places them in the bottom fifth of households by income nationwide. Both received a cost-of-living adjustment in their government benefits in January of this year and the prior one, but making ends meet still required significant lifestyle changes, they said.
They used to frequently go to Denny’s for lunch, Briggs said, but a recent price hike took the chain out of reach. Now they dine at other less expensive restaurants — a local Mexican joint or pizza place. At least, that’s when they still eat out. They cut back on restaurant lunches by about two days a week. They almost never go out for dinner anymore.
Now, to save money, Briggs often prepares a skillet dish his family fondly refers to as “Trash” — a stir-fry of any leftover meat and veggies, plus cubed potatoes. But the prices of those ingredients have gone up, too. Briggs and his mom have given up some other small indulgences and tempered special occasions. They decided to skip turkey last Thanksgiving, for example, because the price of meat had risen so much; instead, they defrosted some pork loins they’d purchased earlier in bulk.
This reflects a broader pattern visible across consumers at many income levels: the decision to switch to lower-cost substitutes when making everyday purchases. “Many shoppers have swapped name-brand goods out for generic or private-label products,” said Dhwani Worah Upadhyay, Fetch’s vice president for analytics and insights. Private-label sales rose sharply in their customer data in 2022 compared to a year earlier, she said. Abandoning a favorite brand can save money but can also, of course, be discouraging.
Trading down hasn’t always proven possible; even before the recent run-up in inflation, the family usually already opted for lower-cost brands at the grocery store. To stay within their budget, Briggs says his mother balances her checkbook each month and keeps careful records of every expense.
“Trust me,” he said, “you don’t want to hear when she’s off a dime or a nickel and can’t find that one nickel.”
He is grateful that they opted to refinance their home in early 2021, when rates were still quite low, Briggs said. That has saved them roughly $80 per month.
Now things are getting so expensive and everything is increasing except the income.”
Kadian Goldson, Tamarac, Fla.
Every evening, after putting her 5-year-old daughter to bed, Goldson gives herself about an hour of “me” time. As a single mother, Goldson allocates these spare minutes carefully: She turns on a movie, grabs her phone and begins cross-checking prices for eggs.
Well, not only eggs. She also checks whether the bags of frozen shrimp that her daughter likes are cheaper this week at Publix or Sam’s Club. And whether Walmart has a sale on water, or if anyone in her Telegram discount group has spotted good deals on snacks.
Also, she looks to see which of the gas stations in her area is currently participating in a cash-back offer on an app she uses. Can she triangulate a trip to that gas station in between visits to the multiple grocery stores on her list?
This comprehensive research, done across multiple loyalty apps and discount sites, is part hobby, part necessity. If she doesn’t do her homework, “then I’ll be spending outside of my budget,” she says, “and I can’t really afford that.”
[Megan McArdle: Why eggs are cheaper than you think]
Fetch’s Upadhyay says this kind of change in behavior is not unusual. A lot of shoppers are “visiting multiple stores in search of lower prices, and switching to different types of retailers that provide better value,” she said.
Goldson first noticed prices rising last spring. It caught her off-guard. “It’s not like we had a warning, like, oh, you know, inflation or anything is going to happen. So that was something I personally was not prepared for financially.”
She’s also been hit with some other sharp expense increases, ones that are harder to avoid (or research her way out of): In 2021, her employer had offered a daily child-care stipend that covered much of Goldson’s care costs. But this was a temporary, early-covid-era perk that ended. In 2022, she spent roughly $7,000 on child-care services.
To help compensate, she’s tried to be more flexible about what she purchases — buying whatever meat is on sale, say, or picking up two-for-one bulk deals. And she’s cut back on discretionary spending, sacrificing luxuries such as manicures and vacations.
“All budget, everything kind of went out the window with inflation. And now things are getting so expensive, and everything is increasing except the income,” she says.
Actually, Goldson’s income did go up a bit: A customer service advocate for an insurance company, she got a $2-per-hour raise last year and now brings in around $75,000 annually. That’s close to the median household income. But after taxes, Goldson says, her hourly increase wouldn’t be enough to offset her rising expenses absent major changes to her shopping habits.
The more noticeable tax, though, is the one on her time — how much of it she now spends researching sales and discount offers.
What about all those covid-related government benefits intended to help families like hers, such as stimulus checks and the expanded child tax credit? It feels like they didn’t make much difference to her finances in the long run, Goldson says. Several other families interviewed for this story had largely forgotten about such benefits until being asked whether they’d received them.
This appears to reflect broader trends. In the spring of 2021, as stimulus payments were first landing in bank accounts, consumers suddenly evaluated their financial situation much more positively, University of Michigan data showed. But sentiments reverted to their more modest levels shortly thereafter.
We are just trying to be really wise, but not stingy.”
Brooke Martens, Durham, N.C.
Brooke Martens and her husband, Nam Hyung Kim, earn more than our prior two families — she brings in about $60,000 as a project coordinator at a medical group; he makes nearly double that as a remote IT worker for a company in South Korea. Together, they fall within the top fifth of U.S. households by income.
Despite being relatively well off, the two live frugally, as they’ve been saving to buy a house in an expensive market. They try to spend only from her income and save most of his (post-tax) take-home pay. They eat a lot of ramen, as well as inexpensive premade salads from Sam’s Club. The prices for these and other groceries have gotten noticeably more expensive, Martens says, but “it’s a little bit here and there.”
The bigger pinch is coming from recent rent hikes: Their rent rose from about $1,400 per month in 2021, to $1,600 in 2022, to $1,800 this year.
Kim hasn’t received a raise in the past couple of years, but last year Martens received two: first a merit raise, then an across-the-board cost-of-living adjustment she was told was given to all employees. Together those bumped her pay up by about $6,000, which she estimated was slightly more than their expenses had collectively risen. But with the most recent rent hike, she’s not sure they’re coming out ahead.
Compared with a lot of other families, Martens and her husband are not struggling, she acknowledges. But they nonetheless found the past year disheartening. In light of inflation and fears of recession, the couple are “reevaluating” their financial goals — especially those related to home-buying. “We are just trying to be really wise, but not stingy,” she says.
What we learn from these examples
No single family’s financial fortunes will be representative of all Americans’ experiences, of course. Everyone buys slightly different bundles of products and has different expenses and cash flows. But with the help of researchers Alexander Arnon and Xiaoyue Sun at the Penn Wharton Budget Model, we were able to get a sense of some broader patterns.
[Catherine Rampell: Why does the IRS need $80 billion? Just look at its cafeteria.]
Arnon and Sun used government data to examine the kinds of products purchased by households in different income tiers. (Lower- and higher-income households tend to buy a different mix of products.) They also looked at how the earnings of those different groups of households changed, noting that there’s been a lot of variation depending on workers’ occupation or industry.
Their analysis found that lower-income households had the biggest wage gains in percentage terms in 2022. Perhaps this is not surprising, given that industries such as leisure and hospitality have been offering large pay hikes to recruit or retain scarce workers.
On the other hand, inflation also pushed up the total cost of typical expenses for low-income households quite a bit.
It may look like families at every income level came out ahead, at least on average. But measuring everything in percentage terms doesn’t tell the whole story.
If you look at the actual dollar amounts in spending and wages, you can see that the average lower-income family spends much more than it earns. These families live paycheck to paycheck and still can’t pay their bills; they typically bridge the gap between what they earn and what they spend with a combination of government benefits and loans.
The typical higher-income family, by contrast, spends much less than it earns.
If we focus on the net changes in dollar terms, rather than percentage terms, we get a clearer picture: The wage gains for the poorest households were not enough to offset the increase in expenses due to inflation.
That’s all before taxes are taken into account. Penn Wharton estimated how much different households’ wages after taxes rose; the outcome looks even less impressive for lower-income families.
Making matters worse, inflation was higher on essential items like food, housing and transportation, which make up a larger share of lower-income budgets and are hard to cut back on.
This may also understate the gap in inflation experienced by high- vs. low-income households. These calculations basically assume people’s typical purchases don’t change. In reality, higher-income households can at least switch to a lower-cost option when the price of a product they usually buy rises; for example, as cereal prices climb, they might swap out their usual Cheerios purchase with the store’s knockoff “Toasted O’s.” Or switch from free-range organic eggs to conventional ones.
The lowest-income households were likely already buying off-brand cereal and regular eggs, so they can’t always move down a tier. Their option is to pay more for the things they already buy, dip into savings or forgo what discretionary items they can.
Which sometimes puts even the Denny’s pancake deal out of reach.
[Got your own inflation story to share? The Washington Post wants to hear from you. ]
Food may be, for some, a small part of their overall expenses relative to income. But it’s a pretty salient spending category. Grocery runs that once may have been done on autopilot now require more active mental accounting and decision-making, even for those families that have more flexibility in their budgets.
Penn Wharton’s tabulations for how much more money is coming in (through wages) vs. going out (to various spending categories) for different kinds of households are useful for assessing what’s happening to people’s finances in this strange economy, particularly since some of the standard measures may obscure real financial strain experienced by lower-income households.
But even these calculations don’t capture the full experience of what it’s felt like to live among so much economic uncertainty the past couple of years. Americans are frustrated by rising costs, yes. But they’re also frustrated by how much more attention they must pay to these rising costs — attention that is itself costly. This hidden strain on families is likely to continue for some time, even if some headline economic measures continue to improve. And if those improvements stop, and more people start to lose their income entirely, the current low-grade malaise could curdle into something much worse.