Unrelenting high inflation has squeezed employees' pocketbooks and budgets, pushing more Americans to live paycheck to paycheck.
Nearly two-thirds of consumers (64 percent) said they were living paycheck to paycheck in December, according to a new report from LendingClub, up from 61 percent who said they were doing so a year earlier. Nearly 4,000 Americans were surveyed.
What's perhaps more surprising is that half of high-income earners—those making $100,000 or more—said their pay is being stretched too thin, a jump from 42 percent a year ago, according to the report. The majority of employees blame soaring cost of living, which is leaving Americans shelling out more money for housing, groceries, medical bills, gas and other expenses.
The Consumer Price Index (CPI) for all items rose 6.5 percent for the 12 months ending in December, before seasonal adjustment, the U.S. Bureau of Labor Statistics reported Jan. 12. Although it's a slight improvement from months prior—the June CPI, for instance, rose 9.1 percent year-over-year—inflation continues to take a serious toll on employees' financial health.
SHRM Online gathered additional news on the topic.
Employees Say Salary Isn't Keeping Up
The findings regarding Americans living paycheck to paycheck are dire, but they're not surprising: Even though wage growth has been historically high, wages have not kept up with inflation, leaving Americans stretched thin and often dipping into savings.
Employees overwhelmingly say salaries have not kept up with rising cost of living, with a report late last year from Remote.co, a remote-work resource, finding that 80 percent of employees said their current salary is not keeping up. Not only is that causing financial stress, but it's also causing employees to look for higher-paying jobs or side gigs to earn extra cash—an issue that can cause employers big problems as they look to retain workers.
"Inflation and concerns of a recession are greatly impacting employees' financial stress and choices both on and off of the job," said Kathy Gardner, a spokesperson for Remote.co. "For HR professionals already challenged with navigating a tight labor market amid a shifting global economy, the large-scale possibility of career changes may be particularly concerning."
Some Employee Optimism Remains
Despite the bad news coming out of the LendingClub report, a number of employees cite optimism regarding their financial futures: 4 out of 10 expect their money situation to improve next year—up 7 percentage points from 33 percent in July 2022. That's because they are hopeful they might get promoted and because they believe side jobs can help keep them afloat. But those strategies aren't enough for significant economic recovery, said Anuj Nayar, financial health officer at LendingClub.
"If the consumer perception that their incomes will improve this year is proven true, it will hamper the effects of the Fed to curb inflationary pressures," Nayar said. "We can expect more and more Americans of all incomes [to] identify themselves as living paycheck to paycheck until we see the economy recover. Now more than ever, it is crucial for consumers to examine spending and build a cushion of savings to prepare for the unexpected."
Inflation's Toll on Retirement
Soaring inflation has played out in other ways regarding Americans' finances. Forty-one percent of Americans said they stopped saving for retirement in 2022 as increased costs for expenses had a significant impact on their budgets and savings, according to a survey released by U.S. News & World Report. Meanwhile, roughly one-third of the 2,000 workers surveyed said they dipped into their retirement funds last year.
"The survey data shows a clear correlation between the rise of inflation and Americans' delayed or altered retirement plans," said Scott Nyerges, senior insurance editor at U.S. News' 360 Reviews, in a statement.
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