Skip to main content
Financial Fundamentals

Why 80% of Americans Will Run Out of Money

Alexandra Ardelean

The Savings Dilemma

A new survey has found that 80% of Americans will run out of money. This is not surprising given the current financial situation. The personal savings rate is near a 10-year low, which means consumers are spending the majority of their discretionary income. Estimates claim Americans will have no discretionary income left by the end of the year.

Here's why.

Current Financial Situation

Survey Results

A new survey has found that 80% of Americans will run out of money. This is not surprising given the current financial situation. The personal savings rate is near a 10-year low, which means consumers are spending the majority of their discretionary income. Estimates claim Americans will have no discretionary income left by the end of the year.

Here's why.

Cost Increases

Specific Cost Increases

  • New cars cost 30% more than a few years ago, used cars almost 50% more.

  • Rent prices are 26% higher than in 2019, purchase prices up by 28% (cash) or 60% (loan).

  • Food is almost 30% more expensive, with specific items like eggs and margarine significantly pricier.

  • Gasoline and airline fares are up by 40%, hotel prices by 15%, and car rentals by 50%.

Wages vs. Inflation

Wages increased by 9% for the lowest earners, between 1.8 to 4% for middle class, and 4.9% for the top 10%. However, inflation rates are much higher than these wage increases.

Impact of Rising Interest Rates

The federal funds rate increased from 1.5% to 5.25% from January 2020 to present. This means financing costs have increased significantly.

Money Printing Effects

The U.S. money supply saw a 40% increase in three years, which has led to inflation.

The average savings rate is down to just 3.9%. This means consumers are spending almost all their income and not saving for emergencies or retirement.

The Savings Dilemma

Pandemic Savings

Definition and Accumulation

During the pandemic, many Americans saved money because they were unable to spend on travel, dining out, or entertainment. As a result, trillions of dollars of excess savings were predicted to be unleashed post-pandemic.

By mid-2022, over a trillion dollars was spent online alone. Americans spent more on groceries, recreational goods, vehicles, housing, dining out, and insurance post-pandemic. Spending across categories increased between 20 to 50%, often beyond inflation rates.

Excess Savings Unleashed

By mid-2022, over a trillion dollars was spent online alone. Americans spent more on groceries, recreational goods, vehicles, housing, dining out, and insurance post-pandemic. Spending across categories increased between 20 to 50%, often beyond inflation rates.

Wall Street Journal Report

Bank of America reported median household savings and checking balances were up by more than 40% relative to 2019 in September. Chase Bank reported median bank balances across all income groups remained between 10 and 15% higher at the end of Q1 in 2023 compared to end of 2019.

However, San Francisco Fed suggested Americans have burned through over 90% of excess savings amassed in 2020 and 2021, with little remaining likely gone by end of September (already passed).

Spending Categories Increase Post-Pandemic

Bank of America reported median household savings and checking balances were up by more than 40% relative to 2019 in September. Chase Bank reported median bank balances across all income groups remained between 10 and 15% higher at the end of Q1 in 2023 compared to end of 2019.

However, San Francisco Fed suggested Americans have burned through over 90% of excess savings amassed in 2020 and 2021, with little remaining likely gone by end of September (already passed).

Goldman Sachs believes households will not completely deplete their excess savings.

Strategies for Saving Money

Consumer Expenditure Survey Insights

According to the Consumer Expenditure Survey:

  • Average household income before taxes is $94,000 a year; average spent on housing is $24,000 a year (33%).

  • Average spent on transportation is $12,295 a year; average spent on food is $9,300 a year (56% away from home).

  • Average spent on personal insurance and pensions is $8,700 a year.

  • Additional expenses include $583 on alcohol, $1,945 on clothing, $371 on tobacco, and almost $3,500 on entertainment annually.

Housing Expenses Strategies

  • Renting Out Unused Spaces or Renegotiating Lease: If you have extra space in your home or apartment that you don't use regularly (e.g., spare bedroom), consider renting it out on platforms like Airbnb or Vrbo to generate additional income. Alternatively, if you're renting your home or apartment and have been a good tenant for several years without any issues (e.g., late payments), you may be able to negotiate a lower monthly rent with your landlord based on your track record as a reliable tenant.

Transportation Expenses Strategies

  • Advice on Buying Affordable Cars: If you need to purchase a vehicle but want to keep costs low, consider buying a reliable used car from a reputable dealership or private seller instead of purchasing a brand-new car with all the latest features and upgrades. You can also explore financing options with lower interest rates or longer repayment terms to reduce your monthly payments while still getting the transportation you need.

Food Expenses Strategies

  • Meal Planning: Plan your meals for the week in advance based on your budget and dietary preferences. Create a shopping list with all the ingredients you need for each meal to avoid impulse purchases at the grocery store. Look for sales or discounts on staple items like rice, pasta, canned goods, and frozen vegetables to save money without sacrificing nutrition or flavor.

Personal Insurance and Pensions Strategies

  • Review Your Coverage: Periodically review your insurance policies (e.g., auto insurance, homeowners/renters insurance) and retirement accounts (e.g., employer-sponsored plans like a 401(k) or individual retirement accounts) to ensure you have adequate coverage and are taking advantage of any available tax benefits or employer matching contributions. Consider consulting with a financial advisor or insurance agent if you need help evaluating your options or making informed decisions about your coverage levels and investment strategies.

Additional Expense Reduction Suggestions

  • Limiting Non-Essential Spending: Identify areas where you can cut back on non-essential expenses such as dining out at restaurants multiple times per week or subscribing to multiple streaming services with overlapping content. Set realistic spending limits for discretionary categories like entertainment or hobbies without completely eliminating them from your budget so you can still enjoy some leisure activities without overspending.

Conclusion and Personal Health Note