By: David Ashley, MD, MBA

A study published on May 31 from BMO Harris Bank “BMO Real Financial Progress Index: Inflation Causing a Quarter of Americans to Delay Retirement.” showed that 25% of respondents are changing their retirement plans and delaying retirement due to recent economic events. Reason one forcing these changes is that “inflation has adversely affected their personal finances.” This article contains important statistics that help us understand what many Americans are experiencing right now.

The article stated that “80% of Americans surveyed plan to change their actions to offset the impact of inflation and rising costs of everyday essentials:

  • 42% are changing how they shop for groceries. This includes opting for cheaper items, avoiding brand names, and buying only the essentials.
  • 46% are either dining out less or consciously spending less when dining out.
  • 31% are driving less to offset the soaring cost of gas.
  • 23% are spending less on vacations or canceling them altogether.
  • 22% are taking measures such as canceling subscriptions to the gym, cable, etc.
  • 36% of Americans have reduced their savings
  • 21% have reduced their retirement savings
  • Over 60% of those aged 18-34 said they had to reduce contributions to their savings.”

Let this information sink in. Assuming this is a representative sample of the US adult population, this is very concerning. Inflation is forcing people to buckle down and decrease purchases. These numbers will only worsen if inflation persists as savings are depleted. It is not a good sign that people are saving less in general, including for retirement.

Of equal concern is that another study came out at about the same time last week saying that consumer credit card debt is increasing rapidly. What this means is that people are borrowing money to stay afloat. If inflation remains elevated like this, more people will continue to save less, and a continuously increasing number of families will have to use credit to cover living expenses. At some point, credit accounts will be maxed out.

Add to this that the stock market is down 10-15 percent this year. Those people lucky enough to have stocks in an investment/retirement account are feeling poorer.

The “Great Resignation” that was happening during the pandemic, where people were retiring early or not returning to jobs they were laid off from, is reversing now. People are now feeling the effects of inflation, while at the same time, the stock market is in decline. This might turn from the great resignation to the “Great, Please, can I have my job back.”

I am not an economist, but these numbers tell me that Americans are struggling to pay for necessities and making cuts where they can. Target and Walmart have recently reported that sales have slowed down, another sign that people are struggling and making cuts. Credit card debt is increasing, along with the interest rates on that debt. Consumer spending accounts for 70% of economic activity, and the risk of a recession increases when consumers cut back on spending.

There is, however, good news in all of this. Inflationary periods end when people stop spending money. If we are going into recession, that is because people aren’t spending like normal. Decreased demand for goods and services leads to decreasing prices, which is the cure for inflation. Prices will start to normalize, or at least stop increasing.

What can you do to handle inflation and prepare for a possible recession?

  • Continue to work on developing a personal and family budget.
  • Cut out unnecessary extra expenses
  • Try to save a little extra for a rainy day

Other family members who are not working might consider taking on work to supplement the family income in case the main breadwinner has hours cut back or, worse, a job loss.

  • If you are considering downsizing your home, you might do that sooner rather than later.
  • Start a garden. It is great exercise, and the food you produce is both fresher and cheaper.

To recap, our economy’s current (negative) trends are unsettling. It is important to remember that we have been here before and will be again in the future. The cycles of flush times alternating with lean times are normal events. Striving to improve your overall financial resilience will help you weather these shifts in the economic tides.