Why are low-income families affected more by higher food costs?

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If most of your money is already going to cover essentials, it’s hard to make cuts.

the main points

• Low-income families spend less on luxuries, so there is less room for budget cuts.
• The cost of living was 7.7% higher in October than a year earlier, with costs rising most in certain categories such as food and energy.
• The data suggests that households at the lower end of the wage scale have already begun dipping into their savings to cover costs.

Inflation made life difficult For many families this year, it has increased costs for everything from putting food on the table to keeping a roof over your head. However, the price hikes have had a significant impact on low-income families. One reason is that families with less money don’t have much breathing room when it comes to cutting costs. Here are some other reasons.

1. Basics make up a larger share of spending for low-income households

The latest data from the Bureau of Labor Statistics showed that the overall cost of living in October was 7.7% higher than a year earlier. Food at home jumped 12.4% in a year, while energy services increased 15.6%. This is difficult for many families. But according to research by EconoFact, low-income families spent nearly three-quarters of their money on necessities like food, transportation, and rent, utility costs, and mobile services. There is not much room for maneuver.

When all these costs rise exponentially without a corresponding jump in wages, it is very difficult to find funds to cover the bills. Sure, the family might be able to lower their cell phone costs a bit. But they still need to buy food and pay the rent. Families with larger amounts of non-essential spending can refrain from luxuries such as taking a vacation or buying a car. In contrast, families who already spend the majority of their income on necessities may have to choose between paying the utility bill or putting food on the table.

2. Low-income families are less likely to have savings

The stimulus checks paid during the initial stages of the COVID-19 pandemic provided a much-needed boost to… bank Balances many low-income families. Lower spending and stimulus payments have hurt the amount of money Americans are holding onto Savings accounts It stepped up across the board.

That extra money has cushioned some of the impact of inflation for some families.

Unfortunately, that money only goes so far. worst? It’s starting to run out for families who bring in less money. In fact, not only do lower-income families have less savings now, but some do bear debt to cover basic living costs.

According to Federal Reserve data, excess savings in the lowest income quartile fell by 25% between the first and second quarters of this year. This is the largest drop in any income group and shows the degree to which these families are immersed in their savings. In addition, research by Liberty Street Economics looked at credit card balances in different ZIP codes and also showed that low-income credit card holders now owe more than they did before the pandemic.

3. It is difficult to reduce costs if you are already buying lower priced items

There are a lot of tips on how to cut costs. For example, you can switch to stocking branded products or find ways to reduce food waste. But if you’re already doing these things, inflation is very hard to beat. In addition, it is also difficult to do Buy in bulk If you don’t have extra money to pay for things in advance.

Another issue is the skyrocketing transportation costs. This can make it difficult for some families to travel to lower cost stores and get better discounts. In general, families who bring in less money have less flexibility when it comes to realigning their budget and accommodating higher living costs.

Will inflation continue in 2023?

The good news is that Inflation appears to be slowing, which means that prices may stop rising so quickly next year. However, prices are still high. And just because we can see the light at the end of the tunnel, that doesn’t mean we’re there yet. Meanwhile, it’s people on the lower end of the pay spectrum who are hardest hit.

the The specter of recession looms is another concern. One of the best ways to protect your family from an economic downturn is to have your own emergency fund Contain the equivalent of three to six months’ worth of living expenses. Makes it easier to deal with job loss or other financial hits. Federal Reserve data indicates that lower-income households are already dipping into their savings, which could make it difficult to deal with the impact of the recession.