sopa images | Light rocket | Getty Images
Consumer prices rose 7.5% in January from a year earlier. the highest annual rate in 40 years.
However, households do not feel the same price shocks.
The lowest-income working households (those earning less than $20,000 a year) experienced the highest inflation of any income group in 2021, according to the study. analysis researchers at the Wharton School of the University of Pennsylvania.
These families devoted most of their budgets to necessities such as energy and transportation, which rose in price faster than other goods and services.
People with higher incomes live better
Meanwhile, the lowest-paid workers have been the beneficiaries of the biggest pay rise in the past year, as restaurants and other generally low-paid employers competed for rare talents.
But higher living expenses for the lowest paid were more than three times their additional annual wages – $1,837 vs. $578, respectively, according to a report from the Wharton School released Tuesday.
According to Alexander Arnon, Zheli He and Xiaoyue Sun, co-authors of the report, the dynamics means that the lowest incomes have experienced a decline in purchasing power in 2021 unless they have been able to supplement their income with other income such as government benefits.
Those who earned more did better. According to the analysis, most households with annual incomes between $20,000 and $100,000 are roughly break even, while those with more than $100,000 have come out ahead.
For example, in households with incomes over $150,000, annual wage growth outpaced cost of living growth by about $2,000 (or $7,431 vs. $5,483, respectively).
(Of course, experience may differ in each income cohort. The analysis measures the median worker, or who is in the middle of the group.)
It may seem counterintuitive that the highest paid workers have pulled ahead if their wage growth has lagged that of the lowest paid. But their increase came from higher starting incomes, which in dollar terms amounted to more money than those with the lowest incomes. In addition, according to the study, highly paid workers are more likely to stay employed throughout the year and work full time.
In addition, more than 90% of households with incomes below $20,000 in 2021 spent more on work than they earned, according to the study, meaning that many may have had to borrow or spend from savings to finance their lifestyle.
And research shows that low-income people whose savings surged during the pandemic may soon run out of that cash buffer.
More from the “Personal Finance” section:
Focus on what you can control when the stock market drops
When married, filing separately makes sense for taxpayers
Gold prices rise due to Russia’s invasion of Ukraine
By the end of 2021, savings among the lowest-income families were still 65% above pre-pandemic levels, according to the JPMorgan Chase Institute. analysis posted on Wednesday. (These households make up the poorest quarter with incomes of less than $26,000.)
Their accounts were mostly supported by government benefits such as stimulus checks, monthly child tax credit payments from July, and increased unemployment benefits.
But their balance sheets were 120% higher in March 2021 compared to two years earlier, suggesting lower savings, according to the analysis.
“They are still elevated, but clearly on a downward trend for lower-income families,” says Fiona Greig, co-president of the Institute and co-author of the study. “This means that the pace of their income does not quite match the pace of their spending,” she added.
In addition, their savings were just under $1,300 at the end of 2021, which is “not that much cash on hand.” [that will] fuel costs for months and months and months,” Greig said.
The expiration of federal aid could further hit their bills. Monthly child tax credit payments expired at the end of 2021, with federal student loan payments scheduled to resume in May, for example.
Savings have been relatively stable for the top earners (those with incomes over $65,000) during the pandemic, according to JPMorgan. Their balance sheets remain at around 30-35% from 2019 levels, or nearly $7,000 in total.
People with higher incomes were less likely to qualify for certain public assistance; their increased savings were mostly due to cuts in spending during the pandemic on things like travel and entertainment.