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The consumer price index is a key inflation measure.
The CPI measures how quickly prices are changing in specific categories of consumer goods and services.
Categories such as housing, health insurance and technology have idiosyncrasies that make inflation tough to measure. Their inflation readings may not reflect reality for consumers.

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1. Housing

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Housing is perhaps the most consequential category in the consumer price index, a key inflation barometer.

Housing is the largest expense for an average U.S. household. The “shelter” category — which measures costs for renters and homeowners — therefore accounts for more than a third of the CPI weighting, the most of any category.
“Every single component [of the CPI] has some idiosyncratic measurement issue,” Zandi said. “But housing is particularly important. It drives a lot of the inflation train.”
Price changes in “shelter” were generally muted before the pandemic, economists said. But Covid-19 warped that dynamic: Housing costs shot up but have slowed and even started to fall in some areas, economists said.

Housing is particularly important. It drives a lot of the inflation train.

Mark Zandi
chief economist at Moody’s Analytics

Nationally, Americans saw rents grow by 5% in April from a year earlier, to about $2,018 a month on average nationally, according to Zillow Observed Rent Index data. That’s a significant slowdown from 17% growth during the prior year, from April 2021 to April 2022.
Here’s the problem: The CPI doesn’t capture those price trends in real time.
It operates with a substantial lag, meaning it can take six months to a year for a decline (or increase) in current housing prices to fully feed through to inflation data, economists said.
“It’s not necessarily a particularly accurate gauge of what’s going on in the housing market right now,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics.
Here’s the reason for the lag: The U.S. Bureau of Labor Statistics collects rent data from sample households every six months. The BLS also divides these sample households into six different subgroups (called “panels”) and staggers when it collects data for each. Per the BLS, rents for Panel 1 are collected in January and July; Panel 2, in February and August, and so on.

That means it can take a year or so to collect data from all the subgroups.
Overall inflation is expected to slow sharply during the second half of the year as the CPI incorporates the housing price cooldown, economists said.
“It’s almost as much of a certainty as you can get, really,” Hunter said.
There’s an additional housing measurement quirk: The BLS tries to assess price changes for homeowners as well as renters, in a subcategory called “owners’ equivalent rent.”
The measure is essentially a survey that reflects the price homeowners believe they could get if they were to rent their home. While somewhat tied to market rents, homeowners aren’t necessarily feeling those inflationary pressures — especially those who own their homes or have a fixed mortgage, Zandi said.

2. Health insurance

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Health insurance prices have been falling by about 4% a month since October, according to CPI data.
Consumers’ out-of-pocket costs haven’t necessarily dropped, though.
For example, the average person with family insurance coverage through an employer-sponsored health plan saw premiums rise to $509 a month in 2022 from $497 in 2021, according to the Kaiser Family Foundation.
Why the discrepancy?
The government doesn’t calculate health insurance inflation by measuring consumers’ direct costs, such as monthly premiums. It’s hard to assess the value consumers get for those premiums; costs may go up, but consumers don’t necessarily get more bang for their buck. An increase in premiums might more reflect poorer underlying health of the insured population than better policy benefits, for example.
So, the government instead measures costs indirectly, based partly on health insurers’ profits. Profit margins serve as a proxy of consumer prices.

Every single component [of the CPI] has some idiosyncratic measurement issue.

Mark Zandi
chief economist at Moody’s Analytics

Early in the Covid-19 pandemic, health insurers’ profits jumped. Consumers were still paying premiums but were generally disallowed from visiting doctors or hospitals for elective procedures.
Now, consumers are using their insurance more often. Insurers’ aggregate profits shrank in 2021 relative to 2020 since they paid out more insurance benefits — and hence the monthly inflation readings flipped negative.
The BLS updates its profit-related calculations once a year, in October.
Health insurance inflation readings may flip positive in fall 2023 and persist into 2024 due to this dynamic, Zandi said. Health care may be among the few consumer categories notching higher inflation toward year’s end when most other categories have been slowing, he said.

3. Consumer electronics

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Consumer electronics — like those for smartphones, TVs and computers — were among the few categories that saw deflated prices in 2022.
That trend has continued into 2023: Smartphone prices have declined by 20% in the year through April, for example, according to the CPI.  
However, phone prices haven’t exactly fallen at the store.
“The consumer isn’t necessarily seeing that,” said Kenneth Kim, senior economist at KPMG. “To them, it just seems the price has gone up and up and up each year.”
The duality is due to a “hedonic quality adjustment.”
The BLS adjusts the prices of consumer electronics for quality — improvements in microchips, software and screen resolution, for example — which gives the illusion of a falling price on paper. The agency does the same for other categories like consumer appliances and apparel.
In other words, consumers are getting better-quality electronics for the price they pay. With the adjustment, prices appear to deflate.
“In that sense, it is a lower price because you’re getting a lot more value,” Kim said. More

Inflation has eroded household budgets for well over a year, but the pain has not been shared equally.
By most measures, low-income households have been hardest hit.
However, only Americans in the middle class saw their real wages decline over this time.

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Stubborn inflation has driven households near the breaking point, but the pain of high prices has not been shared equally.
By most measures, low-income households have been hardest hit, experts say. The lowest-paid workers spend more of their income on necessities such as food, rent and gas, categories that also experienced higher-than-average inflation spikes. 

“The bottom line is unexpected inflation has done real damage to the public, but some people face a higher cost,” said Laurence Kotlikoff, a professor of economics at Boston University.

Low-income families have a higher annual inflation rate

“The rich don’t even know what gas prices are,” said Tomas Philipson, former chair of the White House Council of Economic Advisers.
Because higher-income households spend relatively more on services, which notched smaller price increases compared with goods, they came out ahead.
Their inflation rate is roughly 6%, compared with 7% for lower-income households who spend a bigger share of income on food, energy and shelter, according to an analysis by researchers at the University of Pennsylvania’s Wharton School.
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Lower-income households also have fewer ways to reduce or change their spending habits and less in savings or investment accounts to fall back on, noted Brian Albrecht, chief economist at the International Center for Law and Economics.
“Inflation makes it hard to make decisions and think about the future, particularly for those with the fewest resources,” Albrecht said.

Middle-income households see slower wage growth

By other measures, Americans in the middle class are getting especially squeezed.
For them, prices increased faster than their income, according to a report by the Congressional Budget Office, while households in the lowest and highest income groups saw their income grow faster than prices over the same time period.
Even though middle-class wage growth is high by historical standards, it isn’t keeping up with the increased cost of living, which in April was up 4.9% from the prior year — making it harder to live the same lifestyle previous middle-class generations did.
“Real wages have declined and that’s a concern for workers,” Philipson said.

Economists’ definitions of middle class vary. The Pew Research Center defines middle class as those earning between two-thirds and twice the median American household income, which was $70,784 in 2021, according to Census Bureau data. That means American households earning as little as $47,189 and up to $141,568 are technically included, although the median income is roughly $90,000.
And yet, within the middle class, households with incomes between $50,000 and $125,000 feel fairly confident about their current economic standing and still have financial buffers to draw on, the latest research from the Bank of America Institute found.
“Job stability has a lot to do with it,” said Aron Levine, Bank of America’s president of preferred banking.

Inflation weighs on most Americans

Aside from their employment status, even those with similar resources are facing different impacts of inflation depending on where they live, whether they have a mortgage or student loan, receive federal benefits or other factors, said Boston University’s Kotlikoff.
But across the board, nearly all households have been slow to adjust their spending habits even as prices rose significantly, which has left them worse off financially, according to a recent “Making Ends Meet” report by the Consumer Financial Protection Bureau.

Instead, Americans are dipping into their savings to keep up their spending, with the personal savings rate of 4.1% representing a 0.4 percentage point drop from March.
At the same time, they are leaning on credit cards to bridge the gap, with balances now up almost 20% from a year ago.
Together, that leaves many Americans — regardless of their economic standing — financially vulnerable in the event of a downturn.
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A measure in the proposed debt ceiling deal that would terminate the student loan payment pause is facing heavy opposition from advocates and progressives.
More than 60% of voters want the stay on student loan bills to be extended if President Joe Biden’s sweeping forgiveness plan is struck down by the U.S. Supreme Court, a new poll finds.

House Speaker Kevin McCarthy, R-Calif., arrives at the U.S. Capitol on May 31, 2023.
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Borrowers, advocates and progressives don’t want to see the payment pause on student loans come to an end.
But that is a part of the debt-ceiling deal, which could be voted on and approved this week. A provision would officially conclude the stay on the bills by September.

Advocates warn that ending the relief could trigger devastating financial consequences for millions of Americans, especially if the Supreme Court blocks President Joe Biden’s student loan forgiveness plan. The justices are likely to strike down the policy, experts say, given their conservative majority. A decision is expected in June or July.
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“This deal takes away the White House’s ability to extend the current payment pause if the Supreme Court kills the relief, making it more likely 40 million people will have to repay loans that the president promised were canceled,” said Astra Taylor, co-founder of the Debt Collective, a union of debtors.
Supporters of terminating the pause say the pandemic has mostly resolved, and that keeping tens of millions of Americans in limbo about their debt obligations could pose risks for both consumers and lenders.

Student debt payment pause is a ‘durably popular’ policy

Since March 2020, the U.S. Department of Education has allowed most people with federal student loans not to make payments on their debt without interest accruing. The bulk of borrowers took advantage of the opportunity.

“The pause on student loan payments remains one of the most durably popular pieces of economic policy because the American people recognize what Washington has long struggled to understand: The student loan system is broken,” said Mike Pierce, executive director of the Student Borrower Protection Center.
Roughly 60% of voters want the pause on student loan bills to be extended if Biden’s sweeping forgiveness plan is blocked by the U.S. Supreme Court, a new poll finds.
The Biden administration has warned that resuming student loan payments without being able to carry out its debt forgiveness plan could trigger a historic spike in defaults and delinquencies because of the economic troubles wrought by the pandemic and borrower confusion over what they owe.

In exchange for voting to raise the nation’s debt ceiling, Republicans had demanded large cuts to federal spending.
As part of negotiations, they also sought to repeal Biden’s executive action granting student loan forgiveness. But the Biden administration refused to agree to that, and the ongoing legal battle over the plan made any legislation potentially moot.

Under deal, pause will ‘cease to be effective’

The pause on federal student loan payments will “cease to be effective” and borrowers will be required to resume paying their bills 60 days after June 30, according to the legislative text of the proposed agreement to raise the debt ceiling. Borrowers’ first due date will likely be in September, experts said.

This deal takes away the White House’s ability to extend the current payment pause if the Supreme Court kills the relief.

Astra Taylor
co-founder of the Debt Collective

As part of the deal, the U.S. Department of Education would also be restricted in its ability to extend this particular relief again, with another prolongment likely only possible from Congress.
Rep. Ayanna Pressley, D-Mass., filed an amendment Tuesday that would strike the provision ending the pause, but her proposed amendment was not included in the final bill.
“Republicans continue to play games with our economy, with disregard for our most vulnerable families,” Pressley said in a statement.

White House spokesman Abdullah Hasan defended the president’s negotiations on behalf of borrowers, pointing out that the administration had planned to end the pause this summer anyway.
“This agreement makes no changes to that plan,” Hasan said.
Correction: Rep. Ayanna Pressley, D-Mass., filed an amendment Tuesday that would strike the debt ceiling deal provision ending the pause on student loan payments. An earlier version misstated the day.
This is a developing story. Please check back for updates. More

A combination of high inflation and a low level of savings are prompting many people to lose confidence in their ability to retire well, research finds.
How wisely retirees take action in four key areas can help improve their lifestyles, according to experts.
For many people, the idea of retirement doesn’t become a reality until around age 45, according to one advisor.

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1. Decide where you will live in retirement

— Key deadline to watch: The sooner, the better.
When it comes to lifestyle, many retirees would prefer to age in place. Yet, it’s important to consider whether your current home will still suit you as you age, according to Craig Copeland, director of wealth benefits research at EBRI.
When it comes to preparing a strategy for where to live in retirement, the sooner, the better, he said.
“Once you have any mobility issues, you really need to be moving on it,” Copeland said. If you plan to relocate, you may want to do it early before health issues set in, he added.
Alternatively, if you plan to age in place, making some upgrades now, such as putting guardrails or handrails on stairs, may help smooth the transition if and when your health declines.

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Finding a place to live in retirement won’t look the same for everyone, noted Susan Reinhard, senior vice president and director of the AARP Public Policy Institute.
Notably, there is no one-size-fits-all answer. While some people may downsize, others may want more room to accommodate grandchildren. “It’s called right sizing for you,” Reinhard said.
While deciding where to live, people would also be wise to make other provisions for their care, including establishing or updating advance directives, which are legal documents that express your wishes in the event you are no longer able to care for yourself.
It’s also helpful to create medical records and to have conversations with family members who you would want to help in the event you need medical attention, Reinhard noted.

2. Come up with a Medicare strategy

— Key deadline to watch: Your 65th birthday.
While you may start your Social Security retirement benefits as early as age 62, eligibility for Medicare generally does not start until age 65.
An initial enrollment period starts three months before you turn 65, includes your birth month and goes three months after the month you turn 65, for a total of seven months.
That goes for Medicare Part A, which covers inpatient hospital care, skilled nursing facility care, nursing home care, hospice care and home health care, as well as Medicare Part B, which covers diagnostic and preventive care services.
A small portion of people may be automatically enrolled if they are already receiving Social Security benefits, noted Jane Sung, senior strategic policy advisor at the AARP Public Policy Institute.
For others, their 65th birthday, and the surrounding months that make up their initial enrollment period, are a key date to watch.
“Don’t wait until the last week of your initial enrollment period, because it is complex,” Sung said.

If you’re still working and have health care coverage through an employer, you may decide not to sign up right away when you turn 65, she said.
Those who opt for traditional Medicare may also want to add Medigap plans, which can help cover out-of-pocket costs, or Medicare Part D, for prescription drug coverage.
Alternatively, people may opt for Medicare Part C, otherwise known as Advantage plans, which are offered through private insurance and include Medicare Parts A and B, and oftentimes other coverage areas.
To help sort through the choices, the AARP offers a Medicare enrollment guide and other resources.
State Health Insurance Assistance Programs, also known as SHIP, also provide guidance to Medicare beneficiaries.
In addition, some people may qualify for financial help through Medicare savings programs if they have income or resources below certain limits.
The key is to be proactive and do your research.
“Certainly, I think six months, four months before your 65th birthday is a great time to start thinking about learning more about Medicare and the different choices available out there,” Sung said.

3. Choose when to claim Social Security benefits

— Key deadline to watch: By age 60, you should go to the Social Security Administration website and review your statement, recommends Copeland.
When to claim Social Security retirement benefits is one of the big questions retirees face.
Most experts generally recommend waiting beyond age 62, the earliest eligibility age. At full retirement age — 66 to 67, depending on your date of birth — you will receive 100% of the benefits you earned. But for every year you delay past full retirement age up to age 70, you will get an 8% boost — a guaranteed return that’s hard to beat in the markets or elsewhere.

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It’s important to note those benefits are also inflation-adjusted, unlike most other sources of income, explained John of the AARP Public Policy Institute.
“The later you can file for Social Security, the better it is as far as the amount you’re going to get,” John said.
By your early 60s, you should be reviewing your earnings record to make sure it’s correct, Copeland said, as that is what will be used to calculate your benefits.
At that time, you will also be able to get a sense of how large your monthly benefit check will be if you claim at ages 62, 67 (provided that’s your full retirement age) and 70.

4. Check if you can save more

— Key deadline to watch: Check in at least 10 years away from retirement.
For many people, the idea of retirement doesn’t become a reality until around age 45, according to John.
By the time you’re about a decade away from retirement, it’s a good idea to give some serious thought to your retirement goals while you’re still working and have time to build up your savings and make other arrangements, he said.
Even so, no matter where you are in relation to retirement, you can still make progress.
“It’s never too late to start,” John said. “Having any level of savings is better than having no savings at all.” More

The home improvement projects homeowners are most interested in, such as sparkling new kitchens and baths, rarely deliver the return on investment they expect.
The top projects with the greatest returns in resale value are more often related to a home’s curb appeal.
Financing renovations or improvements will only get more expensive as long as the Federal Reserve keeps interest rates high to curb inflation.

Most homeowners are planning to remodel at some point down the road, but not everyone will get their money’s worth in improved home value.
Of all home improvement projects, the most popular are sparkling bathroom overhauls, according to newly released data from the Contractor Growth Network, followed by big-ticket kitchen and basement renovations.

In some cases, homeowners may get that money back when it’s time to sell, but more often, these home renovations rarely deliver a great return.
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Overall, homeowners are getting just a 60% return on their renovation investments, according to a separate Cost vs. Value report from Zonda Media, a housing market research and analytics firm.
The projects offering the greatest returns in resale value are not new kitchens and baths, but rather projects related to a home’s curb appeal.
“You have to throw away everything you see on HGTV,” Todd Tomalak, Zonda’s principal of building products research, recently told CNBC. 

Homeowners can expect a 100% return on investment on only a handful of renovations or additions, such as converting a heating, ventilation and air-conditioning system to electric; replacing garage doors; installing a stone veneer; or upgrading to a steel front door.
A minor kitchen remodeling — such as painting and updating the backsplash — did provide high returns, but major kitchen and bathroom renovations did not, the Zonda survey found.
With high home prices and a tight supply of units for sale, more people are choosing to fix up their current home rather than look for something new, according to Tomalak.

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Even though both construction and financing costs are up, this decade could be “the golden age of remodeling,” Tomalak said.
Still, cost is a “critical issue,” he added.
Further, financing renovations or improvements will only get more expensive as long as the Federal Reserve keeps interest rates high to curb inflation.

Do the math before starting a home project

About 95% of homeowners said they plan to take on a major home improvement project in the next five years, according to a recent report by Real Estate Witch. However, only 50% said they can afford it at the moment.
They’ll also likely spend more than they initially expect. The average homeowner shelled out $3,890 on renovations and remodeling in the past year alone, the report found.
To budget wisely, talk to a realtor in your area about specific renovations that could increase the value of your home and which ones to skip, advised Sophia Bera Daigle, CEO and founder of Gen Y Planning, an Austin, Texas-based financial planning firm for millennials.

Always get competitive bids on any project and add 10% to that estimate as a “buffer,” she said, since extra expenses “will likely come up.”
If you are going to finance a project, look into obtaining a home equity loan or home equity line of credit and factor in the interest rate and potential monthly payment. “Make sure you can work these monthly payments into your budget before you begin,” Daigle said.
It may make more sense to hold off on a big renovation so you can save money, pay down debt and see if interest rates go down, added Daigle, a certified financial planner and also a member of CNBC’s Advisor Council.
Finally, consider how long you will stay in your current home and how a renovation will affect your life, Tomalak said. “If people are moving less often, this shifts the question of remodeling from an investment to the quality of living.” More

A tentative deal to raise the debt ceiling limit includes up to $21.4 billion of IRS budget cuts, slashing part of the nearly $80 billion in agency funding.
The bipartisan bill rescinds nearly $1.4 billion of the money allocated to the IRS and a separate deal would repurpose $20 billion for fiscal years 2024 and 2025.
White House officials on Sunday said they don’t expect the budget cuts to fundamentally change the agency’s near-term plans.

Visitors at the U.S. Capitol in Washington, D.C., on May 24, 2023.
Jonathan Ernst | Reuters

A tentative deal to raise the debt ceiling limit includes up to $21.4 billion of IRS budget cuts, slashing part of the nearly $80 billion in agency funding enacted last August to boost taxpayer service, technology and enforcement.  
The bipartisan bill, released by House Speaker Kevin McCarthy and President Joe Biden on Sunday, rescinds nearly $1.4 billion of the money allocated to the IRS. If unchanged, a separate deal would also repurpose $20 billion of IRS funding for fiscal years 2024 and 2025, according to the White House.

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Since the original $80 billion in IRS funding was for a 10-year period, White House officials on Sunday said they don’t expect the budget cuts to fundamentally change the agency’s near-term plans. But the IRS may need to request more funding during the latter years of the original timeline, they said.
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If finalized, the IRS budget cuts would mean the additional agency funding runs out faster, according to Alex Muresianu, a policy analyst at the Tax Foundation.
“But the IRS still has a very large funding increase relative to the baseline,” he said. “So it’s not like we’re turning back the clock.”
The $80 billion IRS funding has been a hot-button political issue since its enactment, and repealing the money was a theme throughout the 2022 midterm elections in the fall.

The IRS still has a very large funding increase relative to the baseline, so it’s not like we’re turning back the clock.

Alex Muresianu
Policy analyst at the Tax Foundation

House Republicans in January voted to slash IRS funding, following a pledge from Speaker Kevin McCarthy to rescind the money approved by Congress. But the measure halted without support from the Democratic-controlled Senate or the White House.
The IRS released its plan for the $80 billion funding in April, aiming to bolster taxpayer service, improve outdated technology and reduce the budget deficit by closing the tax gap with a focus on wealthy families and corporations.
White House officials on Sunday reiterated Biden’s commitment to cracking down on tax evasion among top earners.

Meanwhile, the debt ceiling bill faced pushback Tuesday from Republican members of the House Rules Committee. The bill must pass the GOP-controlled House and Democrat-majority Senate before June 5, which is the soonest the U.S. could run out of money, according to revised estimates from the U.S. Department of the Treasury.
The House is tentatively scheduled to vote on the bill on Wednesday night. More

If nothing in the debt ceiling deal changes, the pause on federal student loan payments will “cease to be effective” within months.
However, the Biden administration was able to keep its sweeping loan forgiveness plan off the chopping block in the negotiations.

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Federal student loan borrowers hoping for another extension of the pandemic-era payment pause received bad news in the tentative deal between Republican lawmakers and President Joe Biden to suspend the debt ceiling and avoid default.
According to the legislative text of the agreement, the pause on federal student loan payments, which has been in effect for more than three years now and spanned two presidencies, will “cease to be effective.” Borrowers will be required to resume paying their student loan bills 60 days after June 30. Their due date will likely be in September, experts said.

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Consumer advocates criticized the deal.
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“The deal codifies an assurance for Republicans that Biden will head into 2024 as Americans’ debt collector in chief,” said Astra Taylor, co-founder of the Debt Collective, a union for debtors.
White House spokesman Abdullah Hasan defended the president’s negotiations on behalf of borrowers.
“President Biden protected the student debt relief plan in its entirety,” Hasan said, adding that the administration “announced back in November that the current student loan payment pause would end this summer — this agreement makes no changes to that plan.”

Here’s what borrowers need to know about the debt ceiling legislation.

Deal ends the payment pause, likely for good

The pause on federal student loan payments is one of the few remaining Covid-related relief measures still in effect. It was first announced by then President Donald Trump in March 2020, and has since been extended eight times.
The policy has suspended the accrual of interest on federal student debt and allowed borrowers to forgo making their payments without facing any penalties. Tens of millions of Americans are taking advantage of it. Since the start of the public health crisis, those who have benefited from the pause have saved around $5,000 in interest on average, according to calculations by higher education expert Mark Kantrowitz.
In the current version of the debt ceiling agreement, the pause would be terminated 60 days after the end of June. The U.S. Department of Education would also be restricted in its ability to extend this particular relief again, with another prolongment likely only possible from Congress.

The White House was aiming to restart student loan payments within months anyway, Kantrowitz said, and so “the legislation does not represent a change in that regard.”
Indeed, the Biden administration had been bracing borrowers to be ready for the bills to resume 60 days after the legal troubles over its student loan forgiveness plan were resolved, or by the end of August, at the latest.
However, the fact that only Congress may be able to extend the current pause worried advocates, given that the president’s sweeping student loan forgiveness plan is currently on hold while the Supreme Court decides its fate.

The deal codifies an assurance for Republicans that Biden will head into 2024 as Americans’ debt collector in chief.

Astra Taylor
co-founder of the Debt Collective

“This deal takes away the White House’s ability to extend the current payment pause if the Supreme Court kills the relief, making it more likely 40 million people will have to repay loans that the president promised were canceled,” Taylor said.
The Biden administration has warned that resuming student loan payments without being able to carry out its debt forgiveness plan could trigger a historic spike in defaults and delinquencies.

Student loan forgiveness, other relief, not in agreement

The agreement to avert economic default doesn’t include a cut to Biden’s plan to cancel up to $20,000 in student debt for tens of millions of Americans. House Republicans wanted to halt the program.
The Supreme Court is likely to strike down the policy, given that the conservative justices outnumber the liberals. A decision by the highest court is expected in June or July.
The Biden administration’s “pending regulatory changes” to student loan repayment would also not be impacted by the deal, including implementing a new repayment plan, said Kantrowitz.
Under the plan, qualifying borrowers would pay just 5% of their discretionary income toward their student debt each month. More

FA Playbook

As high inflation continues, the financial strain on many households has worsened.
For those feeling financial stress, there are several ways to find some wiggle room, experts said.

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Americans have suffered in “declines in overall financial well-being,” according to a new annual Federal Reserve report on economic well-being of U.S. households released last week.
Only 63% of all adults can cover an unexpected $400 expense, the report on 2022 found, down from a high of about 68% in 2021. The results are in keeping with other recent surveys that likewise show the cash cushion Americans have set aside for emergencies has dwindled in the face of record high inflation.

To slow the price growth, the Federal Reserve has steadily raised interest rates, which has posed another problem for households: higher interest rates on debt.
U.S. credit card debts now total nearly $1 trillion — or $986 billion, to be precise — as of the first quarter of 2023, according to the Federal Reserve Bank of New York. That marks the first time in 20 years balances have not fallen following the holiday season, according to the central bank’s research.

In February, Bruce McClary, senior vice president of the National Foundation for Credit Counseling, told CNBC an “ugly stew is brewing” as individuals and families juggle the pressures of rising prices, lower savings and higher costs on their debts.
Now, experts say they’ve seen those pressures continue.
“It’s obviously a time for many people of rising stress levels with respect to their personal finances,” said Mark Hamrick, senior economic analyst at Bankrate.

The situation will continue for as long as economic growth is subpar and inflation is elevated, Hamrick predicted.
Nevertheless, there are several ways consumers can try to ease their financial stress, experts say.

1. ‘Don’t wait until the debt collector calls you’

The National Foundation for Credit Counseling is seeing two trends: an increasing number of people reaching out to nonprofit credit counselors for help, and elevated demand for the debt management programs offered by these nonprofits, according to McClary.
“We’ve seen over the past year that there’s less and less wiggle room in people’s budgets,” McClary said.
Some people are seeking help after they’ve already fallen behind and have started to get debt collection calls, he said.
“My advice to people is: Don’t wait until the debt collector calls you,” McClary said.
“If you’re at the point where you’re going to miss a payment, reach out and get help,” he said, from your lenders, a credit counselor or another trusted financial professional.
If a person waits until after they have missed a payment, they may have fewer options, he said.

2. ‘Think seriously about delaying discretionary purchases’

As prices and interest rates have gone up, it’s a good time to think about putting off unnecessary purchases, according to Hamrick.
“Think seriously about delaying discretionary purchases or at least keep them on or under budget,” Hamrick said.
In the years Bankrate has been doing surveys on top financial regrets, respondents never regret not spending more money, Hamrick noted. But the regret that often ranks highly is not saving more for long-term goals such as emergency savings or retirement, he said.
Delaying big-ticket purchases, such as replacing a car, may free up more of a household’s budget to cover other expenses or possibly to set cash aside.

3. Schedule time to manage household finances

In the same way individuals and families spend time planning their daily, weekly or monthly activities, they should also be setting aside time to keep tabs on their finances, Hamrick said.
This may be as simple as going through bank account transactions to make sure they’re on budget. It may also include keeping tabs on subscriptions and other monthly charges to see where it might be possible to trim costs, he said.
People may be surprised at how much money per month they’re able to save by canceling services, renegotiating rates or finding another provider, he said.
If there is extra cash to set aside, high interest rates have made it a great time to get a better return on those funds, he said.
“High-yield savings is a remarkable opportunity right now,” Hamrick said. More