Every year, one or more studies say Americans lack enough money to cover the costs of an emergency. Usually, that shortfall is several hundred dollars. Another research report shows that the problem may be more severe. Nearly two-thirds of Americans live paycheck to paycheck. Among the culprits is high inflation. (These are the biggest food price increases in America’s largest cities.)
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According to CNBC, “58% of all Americans are now living paycheck to paycheck.” High incomes do not entirely solve the problem. “Whether or not you have significant wealth, everyone is feeling squeezed,” said Alhamisi Simms, portfolio manager at TIAA.
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The economic effects could be profound, especially if a recession or high inflation continues. A recession means the loss of millions of jobs. Many people do not have the means to cover even daily expenses if they are out of work. Inflation continues to take away money because of rising fuel prices and food costs, which American households cannot do without.
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The American economy runs on consumer spending. By some estimates, it is two-thirds of gross domestic product. If Americans must keep what little money they have as dry powder, consumer spending gets eroded. That risk is real, based on the research.
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Another fact the situation uncovers is the actual level of savings Americans have. It is much smaller than some surveys show. People might be able to tap equity from their houses, but this money is illiquid and takes a long time to access, and loans against it carry high interest rates.
A recession would have catastrophic effects on the economy, if the survey results are true.
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