Purchasing power is decreasing

Although wages have been increasing in general, they haven’t been increasing fast enough to keep up with inflation according to an October report from the Federal Reserve Bank of Dallas.

For a majority of employed workers, the median decline in real wages when factoring in inflation this year is over 8.5% — the biggest pay cut in 25 years, said the researchers. If you’re one of them, this means your purchasing power is being severely eroded.

Nearly three-quarters of respondents in the PYMNTS study noted increases in their monthly bills, and many pointed to the cost of fuel and groceries.

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Credit card debt is rising

As Americans struggle to keep up with the ballooning costs of consumer goods, many are turning to credit cards to fill the gap.

Credit card balances climbed by $46 billion in the second quarter of 2022, reported the Federal Reserve Bank of New York in August. This could be continuing to increase as the paycheck to paycheck lifestyle becomes more prevalent.

The PYMNTS study also indicates that 67% of those living paycheck to paycheck without any issues paying bills say that they made credit card payments in the last 90 days — even as a quarter remain unaware of the interest rates.

The federal fund rate just got hit with another hike by the central bank earlier this month, which means the interest rates on your outstanding credit card balances are increasing too.

According to the most recent data from LendingTree, the average credit card interest rate in the U.S. has risen to 22.4% — up from 22.21% the previous month.

More: How to pay off credit card debt

Savings are dwindling

Many consumers are barely making ends meet — let alone have room at the end of the month to fill up their savings accounts.

The most recent data from the Federal Reserve Bank of St. Louis shows that the U.S. personal savings rate dropped to 3.5% in August, compared to 9.5% from the same time last year. The rate refers to personal savings as the percentage of income left over after you pay taxes and spend money.

And in life insurance company New York Life’s Wealth Watch Survey, respondents said they dipped into their savings just to cover their basic everyday expenses — taking out an average $616.73.

Many Americans are also dipping into their retirement money to deal with unexpected expenses..

One in five Americans have dipped into the 401(k)s or IRAs to cover an emergency expense, according to a survey by NY Sports Day.

Americans steadily depleting their cash reserves in order to compensate for the effects of inflation is becoming a major concern as experts predict a recession could hit sometime in 2023.

Experts like Suze Orman say it's important to have some emergency funds saved up in case of an unexpected financial crisis, such as a job loss, pay cut or even car trouble.

WATCH NOW: Suze Orman tells a cautionary tale on what happens when you can't cover your next financial emergency

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About the Author

Serah Louis

Serah Louis

Senior Staff Writer

Serah Louis is a senior staff writer with MoneyWise.com. She enjoys tackling topical personal finance issues for young people and women and covering the latest in financial news.

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