Personal Finance

75% of middle-class households say their income is falling behind the cost of living

Key Points
  • A high rate of inflation — 9.1% in June from a year earlier — has taken a toll on household budgets.
  • In addition to dealing with earnings not keeping up with the cost of living, most middle-class households (77%) expect the U.S. to be in a recession by the end of 2022.
  • Experts say it's important to set aside some emergency savings if possible, as well as avoid credit card debt.

In this article

Images By Tang Ming Tung | Stone | Getty Images

The reality of inflation and the specter of a recession appear to be weighing heavily on middle-class households.

Among those whose income falls in the $30,000-to-$100,000 range, 75% say their earnings are falling behind the cost of living, and 77% think the U.S. will be in a recession by the end of 2022, according to a recent survey from Primerica.

There's also been a general uptick in financial worries in the last six months, with 39% of those surveyed expecting to be worse off financially in a year, up from 32% in March and 28% in December 2021. In December 2020, that share was 17%.

More from Personal Finance:
Workers could see average raises of 4.1% in 2023
Focus on ‘personal economy,' not possible recession
Here's why inflation is less likely to hurt some retirees

"There's a higher level of concern financially among middle-income families than there was even at [the height] of the pandemic," said Glenn Williams, CEO of Primerica.

The June survey of nearly 1,400 adults was done as part of Primerica's quarterly check-in on the financial security of middle-income families. 

'Tougher decisions around priorities'

Inflation has taken a toll on households, rising 9.1% in June from a year earlier, marking the fastest pace since 1981 and affecting items ranging from groceries and gas to clothes and cars.

"When you see rising prices in staples like gas, rent, things you can't avoid ... it comes down to tougher decisions around priorities," Williams said.

Income also isn't keeping up: The latest reading of hourly wages showed a 5.1% increase in June from a year earlier, which means inflation has generally wiped out the boost in income. 

"Inflation always hurts those who make less money because the portion of their income that goes to necessities is much higher than that of wealthier people," said Kathryn Hauer, a certified financial planner with Wilson David Investment Advisors in Aiken, South Carolina.

In an effort to combat high inflation, the Federal Reserve recently raised its target interest rate by 0.75 percentage points, marking the biggest hike since 1994. An equally aggressive increase is expected next week when the Fed's rate-setting committee meets.

Recession or not, set aside some cash

The question looming large is whether the economy will skirt a recession — which is generally defined in the U.S. as a significant economic decline that lasts more than a few months — and economists are split on whether there's one on the horizon. 

Either way, if your finances have you more worried than usual and you fear a loss of income in the months ahead, it's worth setting aside some emergency funds if possible.

"Now, of all times, you want to try to put aside some cash for emergencies like a layoff or a broken home HVAC unit," Hauer said. "Many Americans live paycheck to paycheck, which is never good but can cause insurmountable problems if the economy tanks."

Here's how to calculate your personal inflation rate
Here's how to calculate your personal inflation rate

Additionally, keep debt under control, Williams said.

"We understand people are using [credit cards] to fill gaps right now … but as soon as possible try to turn that around," he said.

The average rate on credit cards has been ticking upward and now averages more than 17%, according to Consumers' tab stood at a collective $840 billion in the first quarter, down $15 billion from the preceding quarter but $71 billion higher than a year earlier, according to the Federal Reserve Bank of New York.