PYMNTS MonitorEdge May 2024

Fed Study: Two-Thirds of Adults Say Inflation Made Financial Situation ‘Worse’

Inflation continues to impact the financial lives of U.S. consumers — with a new Federal Reserve study showing that higher prices have made financial situations “worse” for roughly two-thirds of households.

The data contained in the latest survey, “Economic Well Being of U.S. Households,” which covers 2023, found that 65% of consumers said the upward march of prices has had an adverse impact on them financially. That 65% tally includes 19% of respondents who say that their situations were “much worse.”

The Fed’s data show that inflation continues to be the “top” financial concern, despite the inflation rate’s decline from past levels. 

There are indications that spending’s outpacing take-home pay. The Fed’s report said that 34% of consumers said their monthly income had increased in 2023 vs. 2022. But 38% said that their monthly spending had increased.

Credit Is Tightening

As for credit, the Fed found that “the share who were denied credit or approved for less credit than they requested was up 2 percentage points from 2022 and up 5 percentage points from 2021.”

The use of buy now, pay later (BNPL) has been on the rise, with the Fed estimating that 14% of adults used BNPL in the prior 12 months, up 2 percentage points from 2022. Over half of BNPL users said it was the only way they could afford their purchase.

In a nod to what might be paycheck-to-paycheck living: 48% of adults reported spending less than their income in the month before, which implies that about 52% of consumers just made ends meet — or spent more than they took in.

The data dovetails with PYMNTS’ own findings that the majority of U.S. consumers — at about 60% of the adult population — live paycheck to paycheck.  And as seen here, more than a third of consumers have used BNPL, a percentage that cuts roughly the same across all income levels. 

Grocery Costs Tough to Swallow

The Fed noted that “when describing challenges related to inflation, many people mentioned the cost of food and groceries,” adding that, in terms of incomes, households with incomes under $100,000 were more likely to specifically mention the cost of food and groceries as a concern.

PYMNTS Intelligence reported that 65% of Gen Z consumers are using installment plans. Among these, a whopping 45% are leveraging these payment methods to purchase their groceries. And as detailed coming into the end of the year, about 58% of consumers across nearly every income level say they are cutting back on nonessential spending because of rising grocery costs.