Primerica, Inc. released the latest results from the Primerica Household Budget Index, which gauges the financial health of U.S. middle-income families. This monthly metric is specifically tailored to represent the financial capacities of households earning between $30,000 and $130,000 annually.
Recent statistics from August 2023 reveal a slight dip in the purchasing power for middle-income households in the U.S., coming in at 97.4% compared to 97.5% the previous month. GOBankingRates spoke with Dr. Amy Crews Cutts, an economic consultant with Primerica. She weighed in on the study and discussed how the middle class can cope with financial strain.
What Is Purchasing Power?
What exactly is purchasing power? Cutts defines purchasing power as how well you can budget expenses against income.
“If both income and expenses grow at the same rate, our purchasing power is unchanged,” Cutts told GOBankingRates. “But if one grows faster than the other it can mean the difference between building our savings or becoming more financially fragile.”
The Middle-Class Faces Financial Strain
The current 97.4% reading shows a marked improvement in purchasing power from last year when the index registered 88.6% in August 2022. Despite this yearly improvement, the recent drop underscores the persistent financial pressure faced by these households. Building savings and alleviating debt continue to pose significant challenges.
Inflation Puts the Squeeze on the Middle Class
Cutts spoke about the impact of inflation on middle-income households. According to her, inflation is a key factor behind the dampened consumer sentiment and surging credit card debt observed in recent times.
Gas prices are among the purchases putting a financial strain on middle-income households. Although there’s been an uptick in wages, it hasn’t kept pace with the escalating costs of daily essentials, which middle-income families find tough to adjust within their budget.
How You Can Preserve Your Purchasing Power
“Inflation is an unfortunate fact in our daily lives,” Cutts said. “What used to cost $1 is now $1.10, or worse, $1.50 or $2.00. Gasoline can jump a buck seemingly overnight.”
Cutts continued, “These price increases are due to many factors: global economic events, wars, OPEC and other monopolistic institutions, fires, floods, labor strikes, and pandemics, to name a few. Sometimes, we get lucky, and prices come down a bit. But because the causes of inflation are not due to our actions but to those of external forces, there is little we can do to mitigate inflation.”
However, Cutts says there are steps you can take to make sure your money stretches as far as it can go:
- Fill up your gas tank on Monday or Tuesday each week. “Those are the cheapest days for gas prices on average,” revealed Cutts. “It may only be a few cents a gallon that you save at each fill-up, but over a year it could be an extra $100 to $200 that you’ve saved without really changing your weekly routine.”
- Plan meals. “Plan meals using weekly grocery store sales and stock up your pantry and freezer when your regularly purchased items are discounted,” advised Cutts. “This is hard to do with eggs and fresh veggies but getting a few extra packs of meat when it’s on sale can help smooth out some of inflation’s bite. But make sure you only buy what you will realistically use over a month or two as wasted food is the most expensive of all.”
- Focus on the money you have to spend. “Pay attention to what is happening in your profession and at your company,” advised Cutts. “If you haven’t gotten a raise recently and new hires are coming in at higher pay rates than yours, it may be time to ask your boss for a raise or to start looking at new opportunities. You may be able to negotiate a promotion or larger pay increase if they know that you know what you’re worth.”
- Seek financial advice. “Lastly, if you don’t already have professional financial advice, now is the perfect time to seek help to reach your financial goals,” said Cutts.
A Look at the Historical Data
A glance at historical data offers more insights. The Household Budget Index‘s benchmark is set at January 2019, representing the financial state of middle-income households at that time. From 2014 to 2020, the HBI documented consistent improvements in purchasing power for this demographic, culminating in a high of 102.8% in November 2020.
This spike indicated that wages were surpassing expenses on daily items, allowing these families more financial flexibility. However, the onset of inflation reversed this trend, sending the HBI to a post-pandemic low of 85.4% by June 2022.
Since January 2019, middle-income households have, on average, overspent by approximately $2,677 on basic necessities. If unforeseen challenges like the pandemic and its associated inflationary effects hadn’t occurred, predictions place the HBI at roughly 110% today.
The Future of American Purchasing Power
Overall, Cutts believes middle-class households will weather the storm. She predicts an improvement in purchasing power if there is a recession.
“There is good news here in that I think the purchasing power of American households will improve some, on average, if a recession happens or comes close to happening,” said Cutts. “A recession would be caused by a big decline in overall demand, which will lead companies to offer more discounts. Thus, inflation slows during recessions, which is great for all consumers.”
Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.
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