In this High-Cost Economy of 2024 in the US the avg household is finding it increasingly hard to balance their income and expenses.
How US Households Struggle to Balance Income and Expenses in this High-Cost Economy?
The United States is one of the richest and most powerful countries in the world, but many of its citizens are facing financial difficulties and hardships. The cost of living in the US has been rising steadily over the years, but the income of most Americans has not kept up with the pace. This creates a gap between income and expenses that affects millions of people and has profound implications for the future of the country.
Income and Expenses in the US Economy
According to the latest data from the Bureau of Labor Statistics, the average American household spent $6,081 a month or $72,967 a year on various expenses in 2023. However, the median annual household income in the same year was only $74,580, which means that half of the households earned less than that amount. This means that many Americans are living paycheck to paycheck, struggling to make ends meet, and saving little or nothing for the future. The gap between income and expenses is especially wide for lower-income households, who spend a larger proportion of their income on necessities such as housing, food, health care, and transportation.
The median household income in the United States in 2023 was $74,580, according to U.S. Census data, a decline of 2.3 percent decline from $76,330 in 2022. This decrease was mainly due to Covid-19 restrictions and represented the first significant decline in median incomes since 2011. The nation’s capital, Washington, D.C., has the second-highest median household income in the United States at $88,311. However, incomes are not evenly distributed, and the disparity between the district’s white and black populations is staggering, with black residents earning less than half their white neighbors.
The main factors that contribute to the high cost of living in the US are:
- Housing: Housing is the largest expense for most Americans, accounting for about 32% of the average household budget in 2023. The median monthly rent in the US was $1,463 in 2023, while the median home price was $353,900. The demand for housing has outstripped the supply, especially in urban areas, driving up the prices and making homeownership unaffordable for many. The median household income of homebuyers surged from $88,000 the previous year to $107,000 — the largest increase on record at 22% — according to a recent report by the National Association of Realtors (NAR). However, this also means that homeownership is becoming more unaffordable for many Americans, especially those with lower incomes.
- Food: Food is the second-largest expense for most Americans, accounting for about 13% of the average household budget in 2023. The average monthly food expenditure in the US was $786 in 2023, of which $497 was spent on food at home and $289 was spent on food away from home. The prices of food have increased due to factors such as inflation, climate change, trade wars, and the COVID-19 pandemic.
- Health care: Health care is the third-largest expense for most Americans, accounting for about 9% of the average household budget in 2023. The average monthly health care expenditure in the US was $551 in 2023, of which $321 was spent on health insurance premiums and $230 was spent on medical services, drugs, and supplies. The US has the highest health care costs in the world, due to factors such as the lack of universal coverage, the fragmentation of the system, the high administrative costs, and the high prices of drugs and services.
- Transportation: Transportation is the fourth-largest expense for most Americans, accounting for about 8% of the average household budget in 2023. The average monthly transportation expenditure in the US was $491 in 2023, of which $304 was spent on vehicle purchases, $101 was spent on gasoline and motor oil, and $86 was spent on other vehicle expenses and public transportation. The US is a car-dependent country, with low public transit usage and high gas prices compared to other developed countries.
What Households Can Do to Manage This Income and Expense Crisis
While the government and the private sector have a role to play in addressing the income and expense crisis, households can also take some steps to manage their money better and cope with the high-cost economy.
Here are some tips and strategies that households can follow:
- Track your income and expenses: The first step to managing your money is to know how much you earn and how much you spend. You can use a budgeting app, a spreadsheet, or a simple notebook to record your income and expenses. This can help you identify where your money is going, where you can save, and where you can invest.
- Cut down on unessential expenses: The next step is to review your expenses and see where you can cut down on unnecessary or excessive spending. For example, you can cancel unused subscriptions, switch to cheaper plans, cook at home instead of eating out, shop around for better deals, and use coupons and discounts. You can also reduce your energy and water consumption, which can lower your utility bills.
- Look for cheaper alternatives for products or services: Another way to save money is to look for cheaper alternatives for the products or services that you need or want. For example, you can buy generic or store-brand products, shop at thrift stores or online marketplaces, use public transportation or carpooling, and borrow or rent items instead of buying them. You can also use free or low-cost resources, such as libraries, community centers, and online courses.
- Improve cash flow: If you have debt, such as credit cards, student loans, or mortgages, you can try to improve your cash flow by reducing your interest rates, consolidating your debt, or refinancing your loans. You can also defer or negotiate your payments, or seek hardship assistance from your creditors or lenders. You can also improve your cash flow by filing your taxes on time, claiming tax credits and deductions, and requesting refunds or rebates.
- Know what support you are entitled to: You may be eligible for various forms of financial assistance from the government, such as stimulus checks, unemployment benefits, food stamps, Medicaid, Medicare, Social Security, and veterans’ benefits. You may also qualify for other programs, such as low-income housing, energy assistance, child care assistance, and student aid. You can check your eligibility and apply for these programs online or by contacting the relevant agencies.
- Look for alternative sources of income: You can also increase your income by looking for alternative sources of income, such as side hustles, freelance work, online surveys, or selling your skills, products, or services. You can also sell your unwanted items, such as clothes, books, or electronics, or rent out your space, such as a room, a garage, or a parking spot. You can also invest your money in stocks, bonds, mutual funds, or other assets, or start your own business or blog.
Balancing income and expenses is a daunting task for the average US household, and the Biden administration has few options to address this problem amid enormous challenges.
The disparity between income and expenses in the US poses a serious challenge for the economic and social well-being of millions of Americans. Many people are forced to cut back on discretionary spending, such as entertainment, education, and clothing, or to incur debt, such as credit cards, student loans, and mortgages, to cover their basic needs. This reduces their quality of life, their financial security, and their opportunities for upward mobility.
To address this issue, some possible solutions the government can do are:
- Increasing the minimum wage: Raising the federal minimum wage, which has been stuck at $7.25 an hour since 2009, could help boost the income of millions of low-wage workers and reduce poverty and inequality. However, this could also have negative effects, such as increasing unemployment, inflation, and business costs.
- Expanding the social safety net: Providing more generous and accessible social benefits, such as health care, education, child care, and housing assistance, could help reduce the burden of expenses for many Americans and improve their health and well-being. However, this could also have negative effects, such as increasing taxes, deficits, and dependency.
- Promoting economic growth and innovation: Creating more and better jobs, especially in the sectors that are in high demand, such as technology, health care, and green energy, could help increase the income and productivity of many Americans and enhance their competitiveness and resilience. However, this could also have negative effects, such as increasing inequality, environmental degradation, and social disruption.
Balancing income and expenses is a daunting task, but it is vital for creating a more prosperous and fair society for all Americans. The Biden administration has the vision and the means to tackle this challenge, but it also lacks the collaboration and the support of all its partners, including all Republicans in congress, the profit-driven private sector, and the diverse and engaged civil society.
A short Glossary
- Inflation: Inflation is the general increase in the prices of goods and services over time. It can be caused by excessive money supply, high demand, supply shocks, or government policies. Inflation reduces the purchasing power of money and erodes the value of savings and investments.
- High-cost economy is an economy where the prices of goods and services are higher than the average income of the people. This can lead to lower living standards, higher poverty, and lower competitiveness.
- Exchange rate: The exchange rate is the price of one currency in terms of another. It can affect the cost of imports and exports, as well as the competitiveness of domestic producers. A weak exchange rate can make imports more expensive and exports cheaper, while a strong exchange rate can make imports cheaper and exports more expensive.
- Bureaucracy: Bureaucracy is the system of rules and regulations that govern the activities of organizations and individuals. It can affect the cost of doing business, the efficiency of public services, and the transparency of governance. Excessive bureaucracy can increase the cost of production, reduce the quality of service, and create opportunities for corruption.
- Infrastructure: Infrastructure is the physical and organizational structures that support the functioning of an economy, such as roads, bridges, ports, airports, power grids, water systems, telecommunications, and education. It can affect the cost of transportation, communication, and energy, as well as the productivity and innovation of the economy. Poor infrastructure can increase the cost of living, reduce the reliability of service, and limit the growth potential of the economy.
- Monetary policy: Monetary policy is the actions taken by the central bank to control the money supply and the interest rates in the economy. It can affect the inflation rate, the exchange rate, and the economic activity. The central bank can use tools such as open market operations, reserve requirements, and discount rates to influence the money supply and the interest rates. The central bank can also use tools such as inflation targeting, exchange rate targeting, or interest rate targeting to achieve its objectives.
- Fiscal policy: Fiscal policy is the actions taken by the government to influence the level of spending and taxation in the economy. It can affect the aggregate demand, the public debt, and the distribution of income. The government can use tools such as government spending, taxation, subsidies, and transfers to influence the level of spending and taxation. The government can also use tools such as fiscal stimulus, fiscal consolidation, or fiscal rules to achieve its objectives.
- Structural reforms: Structural reforms are the changes made to the institutions, policies, and regulations that shape the structure and performance of an economy. They can affect the competitiveness, productivity, and innovation of the economy. The government can implement reforms such as deregulation, privatization, liberalization, or anti-corruption to improve the efficiency, flexibility, and transparency of the economy.