New research shows that because of rapid inflation and low wages, the average household takes on thousands in debt.

It’s commonly believed that high inflation means higher wages. But today, that just isn’t the case.

The Bureau of Labor Statistics (BLS) recently released a report that says wages went up by 4 percent in one year – one of the fastest increases in about two decades. Inflation, however, rose by 7 percent in that time. So despite the rapid rise in income, Americans actually got a pay cut.

And the Ludwig Institute for Shared Economic Prosperity (LISEP), a non-profit, says that the true rate of unemployment and cost of living are both underreported by the BLS.

With pandemic-era financial aid programs coming to an end – many households have been left to sink under the poverty line.

Since many people already struggle with their retirement savings, the financial impact of all this will likely be visible for years to come.

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Working hard and making less

Inflation is the highest it’s been in decades and most Americans’ wages aren’t keeping up.

LISEP found that from just December 2021 to April 2022, average weekly earnings dropped from $881 to $873. Demographically, women saw the largest drop: $771 to $760.

“Families across America are struggling to make ends meet in the current economy, with rising costs forcing hard decisions that could have generational implications,” LISEP Chair Gene Ludwig said in a press release. “Being forced to make decisions between food and shelter versus healthcare and education is not a sustainable long-term situation for a healthy society.”

No one wants to see their income shrink, especially when costs continue to rise. The BLS reported that the cost of living went up by 46 percent between 2001 and 2020. LISEP disagrees. They reported that the cost of living actually went up by about 64 percent.

So how are families supposed to make up the difference? Debt. LISEP’s research says that single parents with one child have to take on over $6,000 in debt to keep up with their expenses every year.

And the cost of living isn’t the only thing they think the government is underreporting.

LISEP defines the true rate of unemployment as, “the jobless, plus those seeking but unable to secure full-time employment paying above the poverty line.” The BLS reported that unemployment was at 3.6 percent, but LISEP puts the true rate of unemployment at 23.5 percent.

“This may be a harbinger of tougher times ahead for middle- and lower-income families,” Ludwig said. “And a clear signal that policymakers must take immediate proactive steps.”

Find out: 5 Ways to Fight Back Against Inflation

Leaving families behind

The Child Tax Credit is usually given as a lump sum with tax returns. During the pandemic, however, families got CTC payments on a monthly basis. But these consistent payments were only temporary and now that they’re gone, advocates are worried.

Those who got the credit were given a leg up. According to Humanity Forward, a non-profit advocating against poverty, monthly CTC payments increased job and food security. Of those receiving it, 7 in 10 said the payments helped them budget and keep up with inflationary prices.

Reflecting LISEP’s findings, households that received the CTC also accumulated less debt. Instead of putting expenses on their credit card, people used the credit to cover:

  • Utilities
  • Rent or mortgage
  • Clothing or essential items for children
  • Food
  • Emergency saving

This helped to reduce hunger in eligible households by 24 percent.

“Unfortunately, many of these gains are expected to be lost without a return of the monthly Child Tax Credit,” Humanity Forward wrote in their press release.

That loss quickly became apparent. Columbia University researchers found that after just one month without the CTC, child poverty rose by 41 percent. This has put 3.7 million kids below the poverty just between December 2021 and January 2022.

They concluded that unless either the monthly payments recontinue, there are other policy interventions, or the labor market improves, “It is likely that monthly child poverty rates could be persistently high through the rest of 2022.”

Find out: Both the Broke and Wealthy are Getting Clobbered by Inflation

Leaving the workforce while prices rise

Financial struggles don’t just impact next month, next year, or even the next five years. Debt and low wages can have a lasting effect and delay retirement for thousands of workers. When your income doesn’t change, inflation can chomp away at your nest egg.

Retirees have already felt stunned by the change of prices.

Global Atlantic, an insurance group, conducted a study and found that nearly 9 in 10 retirement age investors (ages 55 to 70) said they’ve recently experienced “sticker shock” when buying groceries or making other purchases.

The change is so dramatic, more than two-thirds question if they’ll “have enough to live comfortably in retirement.”

It’s a shared sentiment with the next generation in line.

Despite having more time to save for retirement, Gen X respondents (ages 42 to 57) don’t feel much more secure. Investopedia’s research says that a quarter of Gen Xers aren’t sure if they’ll ever be able to retire.

With today’s inflation rates, living on a fixed retirement income or working without an inflation-adjusted salary can make saving feel next to impossible. And sadly, buying power will probably continue shrinking.

When the economy is rough, it’s best to budget, pay off debt, and plan for the future.

 

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About the Author

Gillian Manning

Gillian Manning

Gillian Manning graduated from Florida Atlantic University in 2021 with her bachelor’s degree in journalism. At FAU she served as the editor-in-chief of the student-run newspaper, the University Press. During her time there, the paper saw an increase in content production, readership, and engagement. Before she even graduated, Gillian was published in various outlets such as South Florida Gay News and the Boca Raton Tribune.

Published by Debt.com, LLC