Pandemic Savings Cushion Thinning as Inflation Rises
American households are burning through the extra savings they accumulated during the pandemic, with Goldman Sachs estimating that 35% of it has been spent by mid-January and the remaining 65% to be exhausted by the end of the year. Inflation has driven the need for households to dip into savings accounts to counterbalance their loss in purchasing power, and their savings rate has dropped to its lowest levels in almost 15 years.
When Karissa Warren lost her job as a kitchen manager in December, she and her husband had to face their over $10,000 credit card debt they had built up in previous financial rough patches. Additionally, inflation had increased the couple’s everyday costs, including meals for their three-year-old daughter.
The fact that the Federal Reserve has been raising interest rates at a rapid pace is having a direct pass through to credit card rates, making it increasingly difficult for those carrying debt to pay it off. Warren, who is set to start a new job that pays more, is hoping to pay off her debt within two years and eventually buy a home.
Paula Green, a gig worker raising her 14-year-old granddaughter, is in a similar situation. She went into $4,500 of credit card debt for her daughter’s wedding and the interest rates have risen to 13.99%. The cost of groceries, gas, and other basic necessities have been increasing, leading to more spending and debt, which could create a cycle of debt for many.
The question of how much tightening it takes to slow down the economy and bring down inflation lies on the Federal Reserve. It’s hard to predict what will happen in the coming months, but one thing is certain: the pandemic savings cushion is thinning out and Americans are feeling the pressure.
0. “American Households Burn Through Pandemic Savings, Lose Spending Power Amid High Inflation” The Epoch Times, 8 Feb. 2023, https://www.theepochtimes.com/american-households-burn-through-pandemic-savings-lose-spending-power-amid-high-inflation_5042428.html
1. “Consumers Scramble to Cover Expenses as Savings Dwindle” PYMNTS.com, 7 Feb. 2023, https://www.pymnts.com/consumer-finance/2023/consumers-scramble-to-cover-expenses-as-savings-dwindle/
2. “Households plunge into debt amid inflation and high interest rates” WBAL Radio, 3 Feb. 2023, https://www.wbal.com/article/602644/3/households-plunge-into-debt-amid-inflation-and-high-interest-rates
3. “Households plunge into debt amid inflation and high interest rates – WEIS | Local & Area News, Sports, & Weather” weisradio.com, 3 Feb. 2023, https://weisradio.com/2023/02/03/households-plunge-into-debt-amid-inflation-and-high-interest-rates
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