Many Americans are living in financial distress, at least some of the time.
That’s the message of a recent Harris Poll, and it’s bad news for economic growth.
About 65% of working Americans say they frequently live paycheck to paycheck, according to a recent survey of 2,105 U.S. adults conducted by The Harris Poll, asking questions supplied by Barron’s. About 30% of households report that they run out of money at the end of every month, while 35% say they don’t have money left at the end of most months.
While the number of people living on the edge financially has an immediate effect on household well-being, there are also longer term economic costs, including higher debt levels and uneven retirement readiness. Those trends could also dampen overall economic growth.
Unsurprisingly, people earning less tend to struggle more, but even those considered well off are vulnerable to paycheck shocks. About 78% of Americans earning less than $50,000 a year report they live paycheck to paycheck, according to the survey. Yet 51% of Americans who make more than $100,000 a year say they still run out of money.
Living paycheck to paycheck is a fairly “ubiquitous” circumstance, says Fiona Greig, Vanguard’s global head of investor research and policy. That’s because U.S. adults generally tend to need a bigger cash buffer than they anticipate. Additionally, she says, many consumers are facing higher living expenses as inflation erodes their purchasing power.
The latest Harris survey data show a higher percentage of Americans living paycheck to paycheck than the roughly 60% reported in August in the Reality Check: Paycheck-To-Paycheck research series. The difference likely is due to differences in the survey population, and rising energy costs that hit consumers’ budgets in recent weeks. At the end of September, gasoline averaged $3.83 a gallon nationally, two cents more than in August, and seven cents more than a year earlier, according to AAA.
Data from the Reality Check series have oscillated since the Covid pandemic started. About 66% of those surveyed in March 2020 said they were spending down their paychecks. Some 52% of Americans were in such straits in April 2021, shortly after the most generous round of federal stimulus checks went out. The latest share, at 60%, is little-changed from the prior year.
Although generous government stimulus programs boosted consumers’ savings during the Covid pandemic, those outlays have waned. The Federal Bank of San Francisco estimated that Americans accumulated $2.1 trillion in total excess savings during the pandemic. Only about $190 billion remained on consumer balance sheets as of June, the bank estimated.Researchers anticipate the data will show that excess savings were gone completely as of the end of September.
Overall inflation also has taken a toll, leaving Americans with less purchasing power. Although headline inflation, as measured by the Consumer Price Index, has fallen from a high of 9% recorded in June 2022, prices climbed at a 3.7% annual pace in September, well above the Federal Reserve’s desired 2% target.
Even as Americans draw down their savings, they aren’t refilling their coffers. The U.S. personal savings rate—the percentage of disposable personal income to total income—was 3.9% in August, according to the Bureau of Economic Analysis. While that is 0.7 percentage points higher than a year ago during a higher-inflation period, the current rate is well below prepandemic averages.
Diminished savings suggest Americans are relying on more credit now than during the pandemic, and data bear that out. Total U.S. credit-card debt hit a record of $1.03 trillion during the second quarter, according to the Federal Reserve Bank of New York.
A slower rate of savings and a higher level of borrowing have longer term consequences for many Americans. Vanguard’s research indicates that even with the influx of cash during the pandemic, the vast majority of Americans aren’t on track to meet their spending needs in retirement, and that’s after including Social Security income and private savings. The problem is particularly acute for lower-income families.
Social Security benefits replace about 62% of the retirement income that families earning roughly $22,000 a year need once they no longer are working, Vanguard reported. Yet even higher-income Americans rely on Social Security. Families earning about $173,000 a year draw about 18% of their retirement income from Social Security, according to Vanguard.
Social Security is inflation-protected, but cost-of-living adjustments affect the amount of benefits paid, and as a result, impact the program’s projected long-term solvency. Social Security benefits are set to rise 3.2% for 2024, increasing the average monthly payment of $1,790 by $57.
The high percentage of financially vulnerable Americans, whether working or retired, poses broader problems. Consumer spending accounts for about 70% of the U.S. economy. If Americans pull back on their household spending because they need to pay interest on their credit cards or loans, or because they don’t have enough saved to live in retirement, that could impact the nation’s growth.
So far, most Americans have kept up with their debt payments while continuing to spend. Overall delinquencies were largely in check as of the second quarter.
The robust labour market has helped: The U.S. economy added 336,000 jobs in September, well above expectations. Even so, the imbalance between labour demand and supply continues to narrow, Fed Vice Chair Philip Jefferson said in a speech last Monday.
“We’re at kind of a turning point in our economy,” Greig says, noting that this could be an inflection point for consumers.
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Couples find that lab-grown diamonds make it cheaper to get engaged or upgrade to a bigger ring. But there are rocky moments.
Wedding planner Sterling Boulet has some advice for brides-to-be regarding lab-grown diamonds, which cost a fraction of the natural ones.
“If you’re trying to get your man to propose, they’ll propose faster if you offer this as an option,” says Boulet, of Raleigh, N.C. Recently, she adds, a friend’s fiancé “thanked me the next three times I saw him” for telling him about the cheaper lab-made option.
Man-made diamonds are catching on, despite some lingering stigma. This year was the first time that sales of lab-made and natural mined loose diamonds, primarily used as center stones in engagement rings, were split evenly, according to data from Tenoris, a jewellery and diamond trend-analytics company.
The rise of lab-made stones, however, is bringing up quirks alongside the perks. Now that blingier engagement rings—above two or three carats—are more affordable, more people are dealing with the peculiarities of wearing rather large rocks.
Esther Hare, a 5-foot-11-inch former triathlete, sought out a 4.5-carat lab-made oval-shaped diamond to fit her larger hands as a part of her vow renewal in Hawaii last year. It was a far cry from the half-carat ring her husband proposed with more than 25 years ago and the 1.5-carat upgrade they purchased 10 years ago. Hare, 50, who lives in San Jose, Calif., and works in high tech, chose a $40,000 lab-made diamond because “it’s nuts” to have to spend $100,000 on a natural stone. “It had to be big—that was my vision,” she says.
But the size of the ring has made it less practical at times. She doesn’t wear it for athletic training and swaps in her wedding band instead. And she is careful to leave it at home when traveling. “A lot of times I won’t take it on vacation because it’s just a monster,” she says.
The average retail price for a one-carat lab-made loose diamond decreased to $1,426 this year from $3,039 in 2020, according to the Tenoris data. Similar-sized loose natural diamonds cost $5,426 this year, compared with $4,943 in 2020.
Lab-made diamonds have essentially the same chemical makeup as natural ones, and look the same, unless viewed through sophisticated equipment that gauges the characteristics of emitted light.
At Ritani, an online jewellery retailer, lab-made diamond sales make up about 70% of the diamonds sold, up from roughly 30% two years ago, says Juliet Gomes, head of customer service at the company, based in White Plains, N.Y.
Ritani sometimes records videos of the lab-diamonds pinging when exposed to a “diamond tester,” a tool that judges authenticity, to show customers that the man-made rocks behave the same as natural ones. “We definitely have some deep conversations with them,” Gomes says.
Not all gem dealers are rolling with these stones.
Philadelphia jeweller Steven Singer only stocks the natural stuff in his store and is planning a February campaign to give about 1,000 one-carat lab-made diamonds away free to prove they are “worthless.” Anyone can sign up online and get one in the mail; even shipping is free. “I’m not selling Frankensteins that were built in a lab,” Singer says.
Some brides are turned off by the larger bling now allowed by the lower prices.When her now-husband proposed with a two-carat lab-grown engagement ring, Tiffany Buchert, 40, was excited about the prospect of marriage—but not about the size of the diamond, which she says struck her as “costume jewellery-ish.”
“I said yes in the moment, of course, I didn’t want it to be weird,” says the physician assistant from West Chester, Pa.
But within weeks, she says, she fessed up, telling her fiancé: “I think I hate this ring.”
The couple returned it and then bought a one-carat natural diamond for more than double the price.
When Boulet, the wedding planner in Raleigh, got engaged herself, she was over the moon when her fiancé proposed with a 2.3 carat lab-made diamond ring. “It’s very shiny, we were almost worried it was too shiny and was going to look fake,” she says.
It doesn’t, which presents another issue—looking like someone who really shelled out for jewellery. Boulet will occasionally volunteer that her diamond ring came from a lab.
“I don’t want people to think I’m putting on airs, or trying to be flashier than I am,” she says.
For Daniel Teoh, a 36-year-old software engineer outside of Detroit, buying a cheaper lab-made diamond for his fiancée meant extra room in his $30,000 ring budget.
Instead of a bigger ring, he got her something they could both enjoy. During a walk while on an annual ski trip to South Lake Tahoe, Calif., Teoh popped the question and handed his now-wife a handmade wooden box that included a 2.5-carat lab-made diamond ring—and a car key.
She put on the ring, celebrated with both of their sisters and a friend, who was the unofficial photographer of the happy event, and then they drove back to the house. There, she saw a 1965 Mustang GT coupe in Wimbledon white with red stripes and a bow on top.
Looking back, Teoh says, it was still the diamond that made the big first impression.
“It wasn’t until like 15 minutes later she was like ‘so, what’s with this key?’” he adds.
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’