Inflation Forces Americans To Adjust Spending

Brace for tougher financial times; that’s the key takeaway from a new study by Forbes Advisor as inflation continues stretching U.S. consumers to the brink. The online study, commissioned by Forbes just weeks ago among 2000 U.S. adults wastes no time outlining the harsh reality: current inflation levels have already impacted Americans’ spending habits and will continue to do so for the foreseeable future.

The findings of the Forbes/ OnePoll study show the precarious state of the American economy with barreling inflation and strained household budgets. According to the data, four in five Americans (85%) are being forced to change their purchasing habits, as a result of rising inflation.

The study also revealed that behaviors varied with regards to respondents adjusting their spending habits on essential items. Over one-third of consumers had not modified their household budgets, choosing to simply spend more on essential items. However, over 54% were found to be making a conscious effort to stay within their budget—whether that meant choosing alternatives or buying smaller amounts.

A quarter of those questioned said they only have a little wiggle room in their current budgets. “If inflation continues to rise, that slack will tighten until it disappears completely. As it is, 27% of respondents’ budgets are already at the limit and another 26% are over budget,” Forbes Advisor reported.

Cutbacks

Unsurprisingly, nonessentials weathered the most cutbacks, with two-thirds of respondents spending less on discretionary items, including entertainment and socializing.

But these statistics are just the beginning, pointing to more worrying trends on the horizon.

Citing data from the U.S. Bureau of Economic Analysis, a recent World Economic Forum thinkpiece suggests that “Americans are now saving less than at any point since the Great Recession, indicating that money is indeed getting tight in many households that are feeling the sting of sky-high prices for food, fuel, and housing.”

Earlier this month, the U.S. Bureau of Labor Statistics also announced that food prices have risen 11.9% over the last 12 months. This is the greatest 12-month increase Americans have faced since April 1979. The Forbes study found that this confluence of factors has led to another troubling trajectory: consumers’ increasingly relying on a credit card buffer.

To combat climbing inflation, two-fifths (40%) of those surveyed who own credit cards reported they were using them more often. Over 26% of respondents said they’d more recently started carrying a balance on their credit card to cover their monthly spending, in addition to the 38% who were already doing so. Although significant numbers of consumers are more reliant on credit cards, an equally great number, 64%, are concerned about how increasing interest rates are going to affect their debt.

Decrease in Spending

Forbes Advisor also examined the decreased spending in other key areas.

70% of consumers are choosing to delay spending on major unplanned purchases such as household repairs or new vehicles, though Forbes has warned that these may conversely become urgent needs and sources of financial pressure,

Almost a third of respondents have been forced to cancel or postpone a trip, 34% are traveling less often as a result while 17% are downgrading their travel experience to a more affordable option.

The considerable purchasing power of millennials and Gen Z is no secret, and Forbes Advisor did unearth some interesting points regarding their priorities.

The experts found that those aged 18-25 are primarily cutting back on costs related to transportation and food/essentials to manage climbing inflation. In other words, Gen Z are more willing to reduce their spending when it comes to essentials, prioritizing travel, leisure and other discretionary items.

Less than one in five Gen Z participants admitted to cutting back on entertainment/socializing (18%), as well as leisure/travel (18%). This was the opposite for those aged 26+, where the majority are prioritizing essentials within their budget, rather than splurging on luxuries.

Inflation Rates

Additionally, the study found a great disparity regarding concerns over increasing interest rates. Just 53% of those 18-25 expressed concern over rising rates, compared to 72% of millennials (aged 26 to 41) and 74% of Gen X (aged 42-57). Despite this, Gen Zers are still most likely to be carrying a balance on their credit card. According to the Forbes Advisor survey, over 76% have a monthly balance, compared to 74% of millennials and 65% of Gen X.

A recently conducted CNBC study also shed light on how inflation threatens America’s economic health.

“The consumer price index, a broad-based measure of prices for goods and services, increased 8.3% from a year ago, higher than the Dow Jones estimate for an 8.1% gain,”  the article read. “That represented a slight ease from March’s peak but was still close to the highest level since the summer of 1982.”

CNBC’s study also stated that volatile food and energy prices aside, “core CPI still rose 6.2%, against expectations for a 6% gain, clouding hopes that inflation had peaked in March.”

If inflation has in fact peaked, then the worst has passed for American consumers who continue to endure shortages, disruptions, and supply chain snarls brought on by Russia’s invasion of Ukraine. Economists and experts seem confident that a fading pandemic (however painstakingly slow) will go a long way in bolstering Americans’ earnings, easing shortages and bottlenecks, and improving spending opportunities.

Previously published at Wealth of Geeks.

By Sasha Lee