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What’s happening to American households as prices continue to soar? How are families finding ways to cope with the financial and emotional strain of today’s economy?
The effects of inflation on people extend far beyond just higher price tags at the store. From mounting credit card debt to difficult choices about housing, Americans are facing challenges that impact both their wallets and their well-being.
Keep reading to discover practical strategies that can help you navigate these challenging economic times while protecting your financial and emotional health.
The Effects of Inflation on People
The relentless effects of inflation on people have created unprecedented challenges for American households, forcing millions to navigate a complex web of rising costs, mounting debt, and psychological stress. From skyrocketing food prices and housing costs to record-high credit card interest rates, the impact of sustained inflation has touched virtually every aspect of daily life, leaving many Americans struggling to maintain their standard of living.
We’ll examine how inflation has reshaped household finances, altered consumer behavior, and created lasting psychological burdens, while highlighting the various ways people are adapting to this new economic reality and providing some practical solutions for you and your family.
The Economic Cost of Inflation
A close look at household finances reveals the depth and breadth of challenges that households across the US face as a result of the sustained period of high prices:
- Rising costs. Since early 2021, Americans have seen steep price increases for essentials:
- Food costs are up 22%, with eggs jumping 87%.
- Car insurance is up 47%.
- Gas prices, though recently declining, remain 16% higher.
- Rent, insurance, and medical care continue to rise 4% annually.
(Shortform note: In Economics in One Lesson, Henry Hazlitt discusses the effects of inflation on people, contending that inflation reduces consumers’ purchasing power by raising the prices of goods and decreasing the value of each dollar. Inflation raises one group’s incomes, which leads to increased demand and higher prices for goods, which raises another group’s incomes, and the cycle continues until the effect has rippled through the economy. Groups whose incomes rise later are forced to manage rising prices before their incomes have caught up. Additionally, since prices rise proportionately to the rise in incomes, collective wealth does not grow.)
- Job market. More Americans are out of work than a year ago, with the unemployment rate climbing to 4.2%.
- Debt burdens. Household debt has reached $20.2 trillion, up 19% since early 2021, with 14.2% of Americans fearing they’ll miss upcoming payments. Worsening matters, borrowers face steep interest rates: Regular credit cards now charge over 20%, while store cards have hit a record average of 30.45%.
- Housing crisis.
- Home ownership eludes many Americans, with median prices jumping 30% since the pandemic.
- Mortgage rates, which continue to climb, are up 0.4 percentage points even after the Fed’s recent rate cut.
- Renters are also struggling, with those who move paying about 5.5% more than current tenants in similar units—up from a 1% difference before the pandemic.
(Shortform note: On average, 3.9 million people in the US were evicted from their homes each year from 2007 to 2016. That number dropped sharply during the Covid-19 pandemic, thanks to a federal moratorium on evictions; however, by 2023, eviction rates nationwide had risen to match or surpass pre-pandemic levels.)
The Psychological Cost of Inflation
Beyond the direct financial impact of higher prices, inflation has created a hidden psychological burden for American workers. Rising prices force people into a stressful choice: either watch their paychecks cover less and less, or face the anxiety of asking their employer for more money.
A recent study of 3,000 workers revealed that 79% choose to let inflation eat into their wages rather than request a raise, with the typical worker willing to give up nearly 2% of their salary just to avoid the uncomfortable discussion.
This widespread discomfort with inflation helps explain why Americans remain so unhappy with the economy—only 23% view it positively, ranking inflation as a bigger concern than immigration, gun violence, or health care.
How Consumers Try to Cope With Higher Prices
Americans are adapting to financial pressures in multiple ways. Many are cutting back on discretionary expenses, with restaurants seeing flat sales and hotels reporting decreased vacation bookings. Others are turning to credit with troubling consequences: American delinquencies have hit 2.74%, their worst level since 2012.
Smart Ways to Cut Expenses
In Your Money or Your Life, Vicki Robin and Joe Dominguez provide the following strategies for cutting expenses.
Strategy 1: Avoid shopping.
- Shop only with purpose, not for entertainment.
- Avoid impulse purchases by waiting a few days.
- Unsubscribe from promotional emails.
- Know your shopping triggers.
Strategy 2: Live within your means.
- Spend only what you can afford.
- Use credit cards responsibly.
- Take on debt only for appreciating assets.
Strategy 3: Maintain what you have.
- Repair items instead of replacing them.
- Use items until they’re worn out.
- Repurpose old items when possible.
Strategy 4: Learn DIY skills.
- Use online resources to learn new skills.
- Watch professionals to learn their techniques.
Strategy 5: Plan purchases.
- Create a yearly shopping list.
- Research prices and brands.
- Buy during sales and holidays.
- Plan ahead to avoid convenience store prices.
Strategy 6: Choose quality and versatility.
- Research product durability.
- Read reviews before buying.
- Choose multipurpose items when possible.
Strategy 7: Find better prices.
- Compare prices across retailers.
- Try haggling.
- Buy used items.
- Look for free items through community networks.
Strategy 8: Rethink needs.
- Consider alternative ways to meet your needs.
- Find creative, low-cost solutions.
- Focus on value rather than deprivation.
During periods of high inflation, when prices rise rapidly across all sectors, implementing these money-saving strategies becomes especially crucial for financial survival. By shopping purposefully, maintaining existing possessions, and finding creative alternatives to new purchases, consumers can significantly reduce their monthly expenses and stretch their dollars further. DIY skills become particularly valuable as service costs increase, while buying used items and seeking out sales can help offset inflated retail prices. Planning purchases carefully and choosing durable, multipurpose items helps avoid the impact of future price increases. Most importantly, rethinking needs versus wants and finding alternative ways to meet those needs can help households maintain their quality of life even as their purchasing power decreases. These strategies, when used together, create a robust defense against the financial strain of inflationary periods.
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