Finance

Most Households Face Financial Uncertainty Despite a Great Economy

Despite the recent report of a GDP growth rate of over 4 percent, millions of Americans are still living like they did during The Great Recession. This is a strange economic recovery. GDP, the stock market, and real estate values are skyrocketing, as is compensation in certain high-level fields. Yet the bulk of American workers is growing poorer as each year of the recovery passes.

The average wage growth for 2018 stands at 2.7 percent, while inflation comes in at 2.9 percent. This means that the average American worker took a slight pay cut in inflation-adjusted terms, and inflation-adjusted terms are all that matter when it comes to paying the monthly bills. It also means that in the midst of an economic boom, most Americans see no benefit. As these numbers are averages, that means that there are people on one end whose incomes are beating inflation handily while others are seeing wage increases much further below the inflation rate or wage decreases.

The result is financial uncertainty. More than 80 percent of households in America live paycheck to paycheck. It’s not unusual for a home where both parents are working full-time jobs and/or second jobs to still turn to online installment loan providers to make ends meet a few times a year. This is the definition of financial uncertainty. With little or no savings, households have no money to handle emergency bills, such as car repair, household repair, or medical expense. Should income decline or be lost completely, there is nothing in the bank to fall back on.

There are myriad causes for the disparity in incomes. First, many people have experienced job losses due to the outsourcing of labor and technological innovation. The manufacturing sector has been particularly hard hit by outsourcing, as have service industries like call centers. Products once made in Ohio or Illinois are now made in China. Call center jobs once located in Phoenix or Jacksonville are now performed in India.

Outsourcing has been all about cost savings. These cost savings are part of what drives up the stock market. It is part of what drives up compensation for white-collar workers in many industries, whose high salaries and bonuses are dependent, in part, on the higher profitability that outsourcing provides.

Technology is also playing a role. Now, even traditionally “safe” white-collar jobs are threatened by artificial intelligence. Whether from outsourcing or technological advancement, worker displacement in America creates higher compensation for some and lower compensation for others. The result has been high GDP growth, wealth inequality, and average wages growing at a rate below inflation.

For most, barely is the best adjective for describing how most families are getting by. This applies to people on the lower end of the wage scale in much dearer terms. Paycheck-to-paycheck living causes enormous stress and worry. Many workers resort to holding second jobs or starting side hustles. They aren’t doing this to build a nest egg. Most can’t make ends meet without a second job. Families with dual incomes are also having to hustle for extra side money.

Often, credit card debt forces people to try and find extra income. Debt of all types, from credit cards to title loans to auto loans to mortgages, has reached all-time highs. The side hustles are not enough. Millions of families are getting by on debt.

Another difficulty comes from finding full-time work or work with benefits. The old days of working for a company for decades and not worrying about health insurance and other necessities have ended. This has left a cloud of uncertainty hanging over many Americans.

Though it’s difficult in this environment, the best thing most Americans can do right now is to reduce debt and save the best they can. For most of us, giant savings plans aren’t realistic; however, small amounts of savings tucked away on a regular basis help a lot. Finding ways to reduce spending can help offset the slow wage growth. As Ben Franklin said, “A penny saves is a penny earned.” By looking for creative ways to save, households can build a nest egg that keeps them out of credit card debt next time an unexpected expense strikes.