'Living paycheck-to-paycheck has become the norm': Inflation takes its toll on American finances as emergency funds run dry

10.28.22 - 65% of employed Americans living paycheck-to-paycheck

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'Living paycheck-to-paycheck has become the norm': Inflation takes its toll on American finances as emergency funds run dry 

-MarketWatch--Inflation is taking its toll on people's emergency funds.

The share of workers who say they are living paycheck-to-paycheck has surged among middle- to high-income earners - 63% and 49%, respectively - up from 57% and 38%, respectively, a year ago, according to an independent survey of almost 4,000 workers released this week by online loan specialist LendingTree. Overall, 65% percent of employed consumers were living paycheck-to-paycheck in September 2022 - up from 60% a year ago.

Meanwhile, the personal savings rate - savings as a percentage of disposable income - fell to 3.3% in the third quarter from 3.4% in the prior quarter, the government said Thursday, the lowest level since the Great Recession 8th. Adjusted for inflation, savings are down 88% from their 2020 peak and 61% lower than pre-pandemic. (Personal savings hit $629 billion in the second quarter of 2022, down from $1.41 trillion in the second quarter of 2019.)

Millions of Americans face rising prices on essential goods and services such as food and rent as their savings are drying up after a post-pandemic spending splurge. On Wednesday, Kraft Heinz Co. KHC, 2.39% said its third-quarter prices were 15.4 percentage points higher than a year before. National retail sales rose 8.2% on the year in September. "There has certainly been some pent-up demand from the pandemic," said Larry Pon, a financial planner based in Redwood City, Calif.

To help retain and attract workers, some major companies - including Starbucks SBUX, 2.13% and life-insurance company Transamerica - are offering "savings programs" and "emergency savings accounts." There appears to be genuine cause for concern: Only 68% of people said they had $400 in emergency cash or its equivalent, according to the most recent survey on the issue by the Federal Reserve, although that figure that has been steadily climbing from 50% in 2013.

But there's another reason for the apparent dearth of emergency funds. "Because of the spike in inflation, Americans' monthly expenses have outpaced their personal income growth," Kristi Rodriguez, senior vice president of Nationwide Retirement Institute, told MarketWatch. "This suggests that households are spending more, not as much because they want to, but because they have to with increased costs for essential items such as gasoline, groceries and healthcare." ...