Why a not-so-bad economy is keeping consumers up at night 

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Why a not-so-bad economy is keeping consumers up at night 

And something your financial institution can do to help 

By:  Bill Jolicoeur, Managing Member & President 

SALARYGAP Partners, LLC 

As the run-up to—and possibly the results of—the 2024 presidential election confirmed, the economy is a top concern for many Americans. At first glance, the U.S. might seem to be in an enviable position. Inflation was 2.4% in September 2024—less than a third of its 2022 peak of 9.1%—unemployment remained historically low in October 2024 at 4.1%, and the U.S. had the most robust economic recovery among G7 nations from 2019-2023. But not all Americans feel they’re in a good place financially.  

The biggest reasons why? The jump in the cost of day-to-day living and the outsized impact that has on people who have low incomes and/or are living paycheck to paycheck (a larger group than you might suspect).  

Everyday expenses have risen 

As we all know, prices have increased in most categories over the last few years. 

Everything from COVID to the war in Ukraine to bird flu caused food prices to spike by 28% over the past five years. And other everyday costs have increased, too, including utilities, healthcare, entertainment, and clothing.  

Cars are another category that’s seen a significant price uptick in recent years. With the average new vehicle cost at a whopping $48,397, fewer people feel they can afford new vehicles, with low-income households being especially hard hit. For instance, the Wall Street Journal (WSJ) reports that in 2019, the bottom 40% of earners made up 18% of new vehicle purchases; in 2023, only 6% did.  

Housing costs have exploded 

The escalating cost of housing is an even bigger concern. The WSJ article found the average mortgage payment for new construction has roughly doubled in the last four years, and, according to the New York Times (NYT), home prices have increased by 60% over the last decade (when adjusted for inflation). The dream of home ownership has become increasingly elusive for many Americans. 

Renters aren’t doing any better. The NYT found that roughly a quarter face housing costs that eat up more than 50% of their income—and this percentage jumps to 70% for extremely low- income families. The experts recommend spending no more than 30% of income on housing and the domino effect of high housing costs is being felt in many communities. Talk to anyone who runs a food pantry or other safety net program, and you’ll likely hear they’ve seen unprecedented use of their services in recent years.  

Real wages have stagnated—or dropped 

Getting back to the subject of income, many Americans find that even if their wages have gone up, the impact of inflation has erased those gains. And it’s not just low-income households that have taken a hit. A recent study by Bank of America found that even families with incomes that top the six-figure mark live paycheck to paycheck.   

Inflation aside, in many cases, paychecks are simply smaller. Remember outrageous bonuses and companies boosting salaries to compete for employees during COVID? Those days are over. According to a 2023 report from ZipRecruiter, 48% of surveyed U.S. companies reported they’d lowered pay for certain roles.  

People are worried about losing their jobs 

In a July survey from the Federal Reserve Bank of New York, 4.4% of respondents expected to become unemployed—the highest percentage since the survey started in 2014. Research conducted by Authority Hacker found that 55% of full-time workers have concerns about their job security with 27% having significant concerns.  

Those worries are no surprise given mass layoffs across industries, caused by everything from international competition to changing consumer tastes, climate change to AI.   

Respondents to the Authority Hacker survey were also concerned about their ability to manage their expenses until they found a new job: 42% didn’t have enough savings to carry them over until they found a new job, and 39% feared they wouldn’t find a new job within three months.  

These stats likely don’t consider the potential for lost income because of a long-term disability, the most common causes of which are musculoskeletal disorders, cancer, injuries, mental health issues, and circulatory problems (like heart attack or stroke). Although this data was last updated in 2021, stats in these areas have remained largely consistent over the years.  

How are consumers responding? 

How are consumers responding to these hits to their financial well-being? 

Many are struggling. According to a 2024 report from Bankrate, nearly 60% of Americans don’t have the emergency savings they feel they should and more than a quarter have no emergency savings of any kind. Those stats are unlikely to change if inflation and high interest rates continue (though the Fed’s recent interest rates cuts could make a difference).  

One common reaction is to run up credit card debt—and there are plenty of signs that’s happening now. NPR reported that according to the Federal Reserve Bank of New York, nearly 20% of credit card holders are using at least 90% of their credit card limit. According to the Fed, the people most likely to fall into this category: People under 30 and those who live in low-income neighborhoods.  

Bankrate found that roughly half of consumers don’t pay off their credit cards in full each month—a four-year high—and reported that Federal Reserve data showed American consumers currently owe 45% more on their credit cards than they did in early 2021. An increasing number of credit card holders are falling into delinquency. According to CBS News, in Q2 2024, the Federal Reserve found 7.18% of cardholders were delinquent vs. 5% the previous quarter. What’s behind these numbers? According to Bankrate, debtors point to inflation (34%) and high interest rates (32%).  

Increased anxiety is another common response. In their 2024 mental health poll, the American Psychiatric Association found that 43% of U.S. adults reported feeling more anxious than they had the year before (vs. 37% in 2023 and 32% in 2022). More than half (53%) of respondents said stress was driving that anxiety, and 63% said they were anxious about their ability to pay their bills or expenses.  

What can your financial institution do to help? 

We know there’s no fast and easy answer to these challenges. But there is one thing that might make a difference: insurance.  

Insurance won’t eliminate every concern, but it could buy consumers the peace of mind of knowing they could cover their bills and keep their lives on track if faced with unexpected income loss. The best plans will include disability, involuntary unemployment and salary gap coverage—and that last one is especially important and can be challenging to find. Salary gap protection will be especially critical as the world of work changes and more people find their jobs eliminated and are forced to take lower-paying roles. Be sure the policy you make available provides the most extensive coverage possible. 

Wage Protector® could be a great solution.  

Its just-right mix of coverage protects consumers’ income stream against: 

  • Disability. Job loss due to injury/illness. 
  • Involuntary unemployment. Job loss because of outsourcing, reliance on AI, job closures from pandemic or natural disaster, strike or lockout, etc. 
  • Salary gap. Lower income, when a job loss leads to a new job. The benefit activates if a new job pays at least 15% less than a previous job, for those with an employer, or 20% less, for self-employed and independent contractors. 

To learn how Wage Protector can deliver peace of mind, visit our contact us page or email  bill.jolicoeur@salarygappartners.com

Wage Protector® and SALARYGAP® are registered trademarks. The use of trademarks without the express prior written consent by SALARYGAP Partners LLC is strictly prohibited. 


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