The average annual salary across the United States is $59,428. Unfortunately, this is not enough. The average Americans think they need yearly earnings of $233,000 for a financially comfortable life. Most Americans live paycheck to paycheck. They struggle to get ahead with an average salary due to the following reasons:
Sluggish Wage Growth
The inflated-adjusted pay for most American workers has stagnated mainly since the late 1970s. The federally mandated minimum wage has also stayed the same since 2009. There is a vast gap between the cost of living and people’s salaries.
High Inflation
The inflation measure ‘Consumer Price Index’ (CPI) increased by 3.4% annually in 2023. With the same salary levels, people have to pay more for groceries and other goods and services. Their purchasing power has diminished, and they have little money left after spending to save and invest.
Steep Housing Prices
Homeownership has become a hefty burden on Americans. According to the Zillow Home Value Index (ZHVI), the average home value in the United States is $360681, an increase of 4.3% over the past year. The mortgage rate has hovered around 7% in the last two years. It is nearly impossible to get an affordable home with an average salary.
Expensive Healthcare Costs
The United States has one of the world’s most expensive and complex healthcare systems. The exorbitant cost of prescription drugs and private health insurance are among the few reasons people put off medical care unless it is an emergency or a chronic illness. Recent polls show that healthcare cost affordability is challenging for about 50% of American adults.
Insufficient Emergency Fund
27% of U.S. adults have yet to plan an emergency fund, while 59% are uncomfortable with their existing emergency savings level. Most people need help to create a buffer due to astronomical living costs, mounting credit card debt, and poor financial planning. They borrow from family and friends, which can worsen their financial woes.
Lack of Enough Retirement Savings
While Americans believe that $1.46 million is a desirable amount for financial peace of mind in retirement years, they hold just $88,400 in a retirement account today. Sadly, 56% of the U.S. workforce lacks access to retirement plans. People with a median salary have to consider prioritizing meeting their present needs over long-term needs, such as retirement.
Unspeakable Cost of Raising Children
Parenting is physically and emotionally exhausting, but it is also financially challenging. A survey found that parents of children under 18 spend $11,505 annually on one child. Pregnancy and childbirth, diapers, doctor trips, childcare, and school and college education take up a massive chunk of parents’ income. Parents are forced to sacrifice their personal expenses or careers to raise a child within the average salary.
Senior Living/Long-Term Care Liability
The monthly median cost of care for in-home, community, assisted living, and nursing home facilities in the United States was estimated between $2058 and $9733 in 2023. Inflation and a shortage of caregiving workers are the two key drivers of the escalating elderly care costs. People who have elderly parents as their financial dependents have to stretch every dollar from their average income.
Debt Burden
The household debt grew by 4.8% between Q32022 and Q32023. This debt comprises mortgage, home equity revolving, auto loans, credit cards, student loans, etc. People carry the debt for years, making it difficult to survive on the average salary. Their dependence on social security as their primary source of retirement income may not be enough.
Tax Burden
60%of Americans believe their tax burden is too high despite a progressive tax system. The typical taxpayer pays about $14,000 annually in federal income taxes. However, this excludes social security and other payroll taxes. The tax burden over and above the high cost of living and other factors makes it impossible for average Americans to stay afloat financially.
Pricey Transportation
Transportation is one of the highest yearly consumer expenditures in the United States. Gasoline, other fuels, motor oil, insurance, repairs, and maintenance are major additional expenses apart from the purchase cost. The unavailability of reliable and accessible public transit makes people spend more on buying a car despite its substantial price tag.
Excessive Cost of Utilities
Americans shell out a monthly average of $429.33 on essential utilities such as electricity, water, internet, phone, sewer, cable television, natural gas, security, and recycling. The total expenditure is equivalent to 10% of their annual income. Americans with average salaries pinch every penny to pay for these utilities or risk losing access.
Career Barriers
Upskilling, reskilling, and continuous learning have become prerequisites to career advancement opportunities. However, professional learning courses and certifications can significantly deplete American workers’ median salary. Many employers refuse to bear this cost for their employees. A study highlights that 43% of employers are unwilling to use company time for workers to upskill due to cost and resource constraints.
Some people face career development blocks due to gender and color discrimination. Cultural illiteracy (skilled immigrants), language, networking, and mobility barriers could impede job growth.
Pressure to Overspend or Indulge
Around 40%of Americans overspend on clothes, shoes, and accessories to impress others. They feel financially pressured to keep up with their family, friends, colleagues, significant others, neighbors, and social media influencers.
At times, they give in to the urge to indulge in a lifestyle choice beyond their means for psychological reasons. 27% of Americans are ‘doom spending’ on things they don’t require. Doom spending refers to spending money as a stress-coping mechanism.