The American Dream – a land of opportunity and prosperity – seems increasingly out of reach for many. While the US boasts a powerful currency, the financial reality for a growing segment of the population, particularly the poor and middle class, paints a different picture.
We have taken reference from CNBC’s Your Money Poll in August 2023 conducted in association with SurveyMonkey and done our research to highlight the key reasons behind the financial struggles of the Americans.
Let us take a look at them.
Inflation Eroding Purchasing Power
As reported by CNBC, the major culprit behind America’s financial woes is inflation. According to a Gallup report published earlier this year, inflation is the top financial problem families are facing. Everyday necessities like groceries, gas, and rent are becoming more expensive, forcing Americans to stretch their budgets further.
Data shows it’s a significant strain, with only 48% having enough emergency savings to cover just three months of expenses. With rising costs outpacing wage growth, many Americans are left with less money to save or pay down debt, creating a cycle of financial hardship. 61% of Americans who took part in the CNBC survey, blame inflation for their financial stress.
Rising Interest Rates and Debt Burden
In an attempt to combat inflation, the Federal Reserve has raised interest rates. While this can help slow inflation, it also makes borrowing more expensive. This disproportionately impacts those with existing debt, such as student loans, mortgages, and credit cards. According to Bankrate, 36% of Americans carry more credit card debt than emergency savings, making minimum payments even harder as interest rates climb. This creates a difficult situation where Americans need help to keep up with both rising costs of living and increased debt payments. 61% of Americans reported to consider themselves to be living paycheck to paycheck.
Potential for Recession and Job Security Concerns
Economic experts are debating the possibility of a recession in 2024. The Creditor Rights Coalition points to a credit cycle with the potential for a “hard landing” due to factors like high national debt and a commercial real estate crisis. While the economy is currently showing growth, recession fears can lead to hiring freezes or layoffs, adding to financial stress. A Bankrate poll found 33% of American workers worried about job security in April 2023. This uncertainty can make it difficult for families to plan and budget for the future, further contributing to financial strain.
Stagnant Wages and Growing Income Inequality
While the cost of living is rising, wages for many Americans haven’t kept pace. This creates a situation where a significant portion of the population struggles to afford basic necessities. 23% of the respondents from the CNBC survey between the ages of 18 and 34 struggle with the issue of layoffs or loss of income.
The widening gap between the wealthy and everyone else further exacerbates the problem. With a larger segment of the population facing financial hardship, the overall economic health of the nation suffers.
Student Loan Debt Burden
Millions of Americans are crippled by student loan debt, hindering their ability to build financial security. According to sources, the total student loan debt in the US has ballooned to over $1.7 trillion. This massive debt burden forces graduates to delay major life milestones like buying a home or starting a family. Many struggle to afford minimum payments, let alone save for retirement or emergencies. Student loan debt not only impacts individuals but also weighs on the overall economy, limiting disposable income and potentially delaying homeownership, which is a key driver of economic growth.
Rising Healthcare Costs and Medical Debt
The high cost of healthcare in the US is a major financial concern for many Americans. A Gallup poll highlights that affording medical bills in case of a serious illness is a top worry, with 56% of Americans expressing concern. Even with health insurance, deductibles, copays, and surprise medical bills can create significant financial strain. This often leads to medical debt, which can be difficult to repay and negatively impact credit scores, limiting access to loans and hindering financial mobility.
Stock Market Volatility and Retirement Savings
The stock market has experienced significant volatility in recent years. This can be especially concerning for Americans nearing retirement or relying on investment returns to supplement their income. A downturn in the market can erode retirement savings, forcing some to delay retirement or return to work. According to a Bankrate poll, 59% of Americans are underconfident that they’ll have enough money to retire comfortably. This uncertainty adds to the overall financial anxiety many Americans face.
Lack of Affordable Housing
One of the key highlights of the survey was that homeowners feel less financial stress than those who don’t own a home. The American dream of homeownership is becoming increasingly out of reach for many due to rising housing costs. According to a report by the National Low Income Housing Coalition, the national hourly wage needed to afford a two-bedroom rental apartment is $28.58, significantly higher than the national minimum wage. This lack of affordable housing options forces many to spend a larger portion of their income on rent, leaving less for other necessities and savings. According to Yahoo Finance, the home values in the US over the last two decades have gone from $140K to $340K. The high cost of housing also impacts those looking to buy a home, as rising prices push homeownership further out of reach for many Americans.
Medical Debt Burden
Healthcare costs remain a significant financial burden for many Americans. A 2023 report by the Kaiser Family Foundation found that over 3 million people have medical debt, with an average outstanding balance of over $10,000. This debt can be particularly crippling due to the often-unexpected nature of medical emergencies and the high cost of treatment, even with insurance. The pressure to manage medical debt alongside other financial obligations creates a significant strain on household budgets.
Rising Costs of Childcare and Eldercare
The high cost of childcare can be a major barrier for parents, particularly working mothers, who are re-entering the workforce or working full-time hours. According to news reports, the average cost of full-time child care in the US is over $11,000 per year. This puts a significant strain on household budgets, often forcing parents to make difficult choices between work and childcare. The rising cost of eldercare also presents a challenge for families caring for aging relatives. The AARP reports that the national average cost of a private nursing home room now exceeds $100,000 annually. These rising costs can deplete savings and force families to make tough decisions about long-term care options.
Cybercrime and Identity Theft
The rise of cybercrime poses a significant financial threat to Americans. According to a Javelin Strategy & Research report, identity theft resulted in over $43 billion in losses for US victims in 2022. These financial losses can have a devastating impact on individuals and families, impacting credit scores, hindering the ability to secure loans, and creating a long road to financial recovery.
Climate Change and Weather Events
The increasing frequency and intensity of extreme weather events due to climate change are creating financial hardship for many Americans. A report by the National Centres for Environment Information (NCEI) found that billion-dollar weather and climate disasters are becoming more common. In 2024 the total 11 events exceeded the loss of $25.1 billion. The total 28 events in 2023 cost $92.9 billion. These events can cause property damage, disrupt livelihoods, and lead to job losses, all of which contribute to financial stress for individuals and families.