US — Amidst the current economic downturn the US is facing, a recent study revealed that more Americans are now living paycheck to paycheck more than ever. This is putting yet another pressure on the US economy as hundreds of millions of Americans are vulnerable to more economic hardship due to more tightening economic (monetary and fiscal) policies the US Federal Reserve (Fed) and the US Government are set to implement to curb the record-high inflation of 9.1% Year-to-Date (YTD) for the month of June.

As the next Fed policy meeting is set to take place one week from now, on the 26th and 27th of July, the almost inevitable outcome is yet another aggressive interest rate hike. Coupled with living paycheck to paycheck and little to no savings at all, if times get tougher than it already is — Americans would find it more difficult to borrow due to consumer debt being more expensive to pay interest rates over time.

What the Study Reveals about American Personal Finance

According to the combined study produced by personal loans website LendingClub and payments and commerce platform PYMNTS. They have discovered an alarming trend; the rate of Americans living paycheck to paycheck is increasing annually. For example, the last data gathered in May of this year shows that the percentage of Americans facing this predicament is an astounding 58%, an increase of 4% from the same month last year of 54%.

Furthermore, 62% of Americans with a median salary of between $50,000 to $100,000 are living paycheck to paycheck, while surprisingly, for those with an annual income of $250,000 and above, 30% are in the same predicament.

Anuj Nayar, a Financial Health Officer at LendingClub commented that this data is a “real eye-opener.” He added, “A year ago, when people heard the term paycheck to paycheck, they were thinking it’s low income, it’s subprime, all these people maybe in the lower income sphere. Actually, no. It’s everyone. It’s all of us.”

According to the study, almost half of Americans who live this way have little to no savings as their salary only covers all of their necessary expenses. On the other hand, most high-income earners who live paycheck to paycheck remarked that most of their costs stem from their family members’ expenses.

The Negative Implications of the Pandemic

“… COVID kind of warped everything financially,” says Rod Meloni, a Certified Financial Planner (CFP) and Business Editor at Detroit’s Local 4 News.

The study reveals that when the pandemic hit and most Americans were forced to stay indoors, it cut a significant cost on the areas of transportation, dining out, and travel/leisure activities. However, instead of saving the excess money from these areas, Americans have developed the habit of allocating these excess funds towards other things besides savings.

The study by PYMNT showed that the average savings nosedived to $2,464 in May 2022 from the same month a year ago of $4,065. An almost 40% decline in just a year.

Finally, now that an upcoming recession is on the horizon, Americans have to pay even more attention to their personal finances and take necessary actions such as creating a budget, setting up an emergency fund, and seeking appropriate financial education to ease the impact of a further economic downturn.