Most Americans can’t keep up with soaring costs, leaving their financial futures uncertain

For Naomi Burns and her family, life isn’t easy. Naomi and her boyfriend are raising four children in a small town an hour from Portland, Ore. They rely mainly on his $65,000 annual income from his work as a traffic control flagger. Naomi takes care of their children but also earns nearly $1,000 each month through social media and delivering for DoorDash.

“He brings home around $680 a week, but we need about $1,000 weekly just to get by, buy groceries, and cover our bills,” Naomi explained to MarketWatch. She added that the family doesn’t qualify for public assistance. “Without my side hustles, we wouldn’t make it.”

To make the most out of their limited funds, Naomi is careful with every dollar. She plans meals, watches for food sales, and uses coupons and store points at the local Safeway to keep their grocery bills low. She even shared how she recently managed to get $152 worth of groceries for just $20, using discounts and coupons. The family spends $100 a week on groceries.

Occasionally, there’s enough left for a treat like fast food. Their four kids typically share three $5.99 Taco Bell meals or two $5 McDonald’s meals, which Naomi uses rewards points to redeem for future discounts.

Naomi admits there’s no money for herself or to save for the future. She doesn’t buy makeup or follow a skincare routine because, as she said, “I just can’t afford it.” Despite trying to stretch their money, Naomi feels like the family is stuck in a cycle of barely scraping by. “We go back and forth between not making enough to feel comfortable but still not having anything extra,” she added.

For decades, American consumers have been the engine of not just the U.S. economy but the global economy. However, the situation has shifted. Inflation has hit low- and middle-income Americans hard, forcing them to make difficult decisions about spending. What once seemed like simple choices—whether to grab a meal at a restaurant or buy an extra toy—have become more complicated. Now, the bottom 90% of earners, those making under $250,000 annually, only account for 50.3% of all consumer spending, according to Moody’s Analytics. Thirty years ago, this group represented 64% of U.S. spending. Meanwhile, as the wealthiest Americans contribute more to the economy, lower-income households are cutting back on their spending.

This shift has led to companies targeting high-income earners, who are less sensitive to rising prices. Car manufacturers, for example, are focusing on more expensive models, raising the average cost of a new car to nearly $50,000 and increasing the average age of new car buyers to 52, according to Cox Automotive data.

The focus on high earners has helped sustain inflation. In January, inflation was recorded at 2.6%, still above the Federal Reserve’s 2% target. Prices have increased 13% in the past three years, and 23% in the past five years.

While inflation has made it harder for low- and middle-income consumers, the situation could worsen. Tariffs, expected to cost the average household an extra $1,200 annually, could hit these groups especially hard, according to the Peterson Institute for International Economics. For Naomi Burns, the financial picture looks bleak. “When you start losing jobs, that’s when the cracks begin to show,” said Diane Swonk, chief economist at KPMG. “The cuts to programs that support low-income families will make things worse.”

Naomi’s family is feeling the impact of rising costs. They are also not alone. Katie Harley, a mother of two from South Carolina, makes $140,000 annually but is still forced to cut back on spending. Her family is focusing on paying off about $20,000 in credit card debt, along with student loans and a car loan.

As part of a low-spend challenge, Katie has limited her family to eating out only twice a week—on Mondays at Chick-fil-A and Sundays at a Mexican restaurant. She’s also cut out her regular Starbucks trips, where she used to spend about $8 per visit. Now, she brews her coffee at home.

Katie has reduced her discretionary spending by thousands of dollars every month, making sure to prioritize necessary purchases. Despite these changes, she says she feels like her family hasn’t sacrificed too much.

“While the individual decisions—eating fewer restaurant meals, holding on to cars longer, and trading down on vacations—may seem insignificant on their own, together they paint a picture of an economy in which spending from all but the wealthiest is on the decline,” said Robert Frick, economist at Navy Federal Credit Union.

A staggering 55% of Americans in the lowest income bracket say they are doing worse financially than five years ago, according to a survey of consumer sentiment. In contrast, 63% of families in the top third of income brackets say they are better off.

Frick also pointed out that inflation on necessities is rising twice as fast as the overall inflation rate, forcing middle- and lower-income families to spend more on essential items like food, rent, and transportation. The end of pandemic-related government benefits only worsened this situation. Meanwhile, high-income families have benefited from secure jobs, rising home values, and expanding retirement accounts, creating what’s been dubbed “401(k) millionaires.”

“Middle-income consumers are planning to spend less across almost all categories,” Stephen Rogers, managing director at Deloitte Insights, said. Their intentions to purchase items like home furnishings, clothing, electronics, and household goods are all significantly lower than in 2021, according to Deloitte surveys.

Late credit-card payments have soared in the past two years. The percentage of car-loan payments that are more than 90 days overdue has hit its highest level in at least eight years for low-income Americans, according to data from the New York Federal Reserve.

At the same time, savings gaps are widening. High-income adults are more likely to cover emergency expenses without debt compared to two years ago, while lower-income households feel more pessimistic about their ability to pay for emergencies with cash.

In February, Morning Consult noted that lower-income households could face even greater difficulty covering emergency costs, especially if inflation continues to rise.

In the meantime, major restaurants like Domino’s, McDonald’s, and Bloomin’ Brands have reported a decline in sales due to financial pressures on low- and middle-income consumers. These companies are now focusing on value offerings to attract these customers.

“We are seeing the weakest spending intentions among middle-income consumers,” said Stephen Rogers of Deloitte. Lower-income households are bearing the brunt of financial uncertainty, but even high-income families are preparing for tougher times ahead. According to Wells Fargo, 80% of households earning less than $100,000 plan to reduce their spending in 2025.

The future remains uncertain for many Americans as the pressure on household budgets increases. With tariffs and inflation looming, consumers of all income levels are feeling the strain. Even as GDP grows and unemployment stays low, the benefits aren’t being shared equally.

As KPMG’s Diane Swonk put it, “People who aren’t in good financial shape tend to hunker down and cut back when the future feels uncertain.” And for millions of Americans, that uncertainty seems to be the new normal.

Sources - 

https://www.marketwatch.com/story/cars-were-once-a-financial-engine-of-americas-middle-class-now-theyre-a-wealth-killer-4b74f628

https://www.coxautoinc.com/news/cox-automotives-car-buyer-journey-study-shows-satisfaction-with-car-buying-improved-in-2023-after-two-years-of-declines/

https://www.americanprogress.org/article/how-the-trump-administration-could-leave-families-hungry-potential-cuts-to-snap-in-2025-and-beyond/