Following the COVID-19 recession in 2020, there has been fairly consistent US economic growth, and the Dow Jones has been performing well — excluding a few dips. However, many Americans are financially worse off, and inflation may be to blame.
34% of Americans live paycheck-to-paycheck and 70% note that they are not financially secure. The disparity between the healthy US economy and the struggle of American workers continues to widen, making people disillusioned with their financial goals.
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TheStreet spoke with Dave Ramsey about the disconnect between strong economic performance and the inability of many households to make ends meet.
Overspending is driving discontent with the economy
83% of Americans say they overspend, and 84% indicate exceeding their monthly budget. In addition to inflation, credit cards may exacerbate the situation: 58% of consumers note that credit cards strongly influence higher spending patterns.
Ramsey believes that overspending on nonessentials is the main contributor to the dissonance between the economy and the financial well-being of average Americans.
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“When you complain that your situation is awful, but there are delivery packages on your doorstep every night — you can’t have it both ways,” he said. “People are anxiety-ridden by the economy, and they’re boxed in.”
“Yet they spend like they’re in a prosperous economy, buying superfluous stuff instead of necessities. It’s shocking how people are budgeting while complaining about the economy.”
A woman is seen holding a credit card while shopping on a cell phone.
Image source: Shutterstock
Inflation is cutting the purchasing power of paychecks
Ramsey insists that the only way for consumers to make it through financial hardship is to make sweeping spending cuts.
“If you’re in the middle of a storm, you batten down the hatches. You don’t keep jumping in puddles,” he said. “You get inside, close everything up, and huddle until the storm passes.”
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While most Americans agree that they’re overspending, it’s clear that paychecks don’t stretch as far as they used to.
However, 24% of workers earning $100,000 per year note that they are living paycheck-to-paycheck, even though that is double the average national salary. Bankrate’s U.S. Economy reporter, Sarah Foster, notes that inflation is a “silent thief” that has significantly cut into paychecks.
“Prices are up almost 21 percent since the pandemic first began in February 2020, requiring an extra $210 per every $1,000 someone used to spend,” she said. “For the many Americans whose pay hasn’t kept up with inflation, higher prices essentially translate to an outright destruction of wages.”
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