Credit card balances jump 13% as inflation outpace wage growth

Wages are rising – but not enough to keep up with the rising cost of living.

Although average hourly earnings are up 5.1% from a year ago, prices have been rising faster. The Consumer Price Index, which measures the average change in the prices of consumer goods and services, jumped a higher-than-expected 9.1% in June, the fastest pace in more than four decades.

To fill the gap, more consumers are relying on credit cards for what they need, helping push total credit card debt to $890 billion.

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Overall, credit card balances rose 13% in the second quarter of 2022, posting the largest year-over-year increase in more than 20 years, according to a report from the Federal Reserve Bank of New York.

However, stocks remain just below pre-pandemic levels, after sharp declines in the pandemic’s first year.

An additional 233 million credit accounts were opened in the quarter, the most since 2008.

Consumers don’t feel ‘financially safe’ for recession

In an effort to cool the economy, the Federal Reserve in July raised the federal funds rate by 0.75 percentage points for the second time in a row.

Amid fears of recession and rising interest rates, more than half of consumers, or 56%, said they are already seeing a decline in their standard of living, according to A recent report from Digital Wealth Manager Personal Capital.

Even more, nearly 69%, think their income is not keeping pace with inflation and less than half said they feel “financially secure enough” for another recession, according to the survey of more than 2,000 adults in April.

The report found that Americans now say they need to earn about $107,800 a year to feel “financially healthy,” nearly double the national average but down 13% in the past six months.

“If everything costs more, it could reset your expectations of what you need to feel financially healthy,” said Paul Deere, certified financial planner and vice president of advisory services at Personal Capital.

“People put a higher priority just to get a job and lower their expectations,” he added.

How do you feel “financially healthy”

Tetra pictures | Tetra pictures | Getty Images

Deere said the amount of money you need to earn to cover expenses and save for the future comes down to understanding your net worth and goals.

Your net worth is basically the sum of all your assets, including cash, retirement accounts, college savings, home, cars, investment properties, and valuables like art and jewelry minus any long-term liabilities or debts, like mortgages, student loans, revolving credit card balances, and any other personal loans.

“First of all, is your net worth increasing or decreasing over time?” If your net worth is in red, you will need to work on saving more and spending less.

First and foremost, is your net worth growing or shrinking over time?

Paul Der

Vice President at Personal Capital

From there, consider the milestones you want to achieve in the future, says Deere, whether it’s retiring, buying a home, or paying for your child or grandchild’s education.

“Putting these things together can really help provide clarity on what you should be prioritizing today.”

Most people agree that they need to cut costs to increase their savings, yet reports show that consumers are not holding back on food, entertainment or travel.

Meanwhile, as long as consumers continue to spend, there will be constant upward pressure on prices.

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