Gas prices may be coming back down to earth, but prices on car insurance, rent, groceries, energy bills and more continue to rise. In fact, prices have gone up on so many goods and services that you might be wondering, is there anything that hasn’t been impacted by inflation?
As far as we know, just the Sony Playstation 5 and, apparently, alcohol. Unfortunately, though inflation might inspire you to try, you can’t survive off video games and craft beer. In this blog, we break down the impacts of inflation and answer a few key questions:
- What’s the effect on the cost of living for Millennials and Gen Z?
- Is inflation worse in Maryland?
- What can you do to maximize your budget?
Millennials and Gen Z have never experienced inflation this high
Inflation reached a 40-year high in June, with consumer prices up 9.1% over the previous year. Groceries alone have risen 11% since 2021. People are spending more money on just about everything, including everyday expenses, monthly bills and even fun spending.
Meanwhile, wages can’t keep up. Median household wages have increased roughly 5% according to the US Bureau of Labor Statistics. Unfortunately, inflation is rising so fast that it’s actually equivalent to a 3% decrease in wages.
As a result, Millennials and Gen Z face a complex challenge. Prices on necessities are up. Insurance, rent and interest rates on home loans are up. It’s even gotten more expensive to furnish your home. For those struggling to pay off student loans and get a start on the next phase of their lives, inflation presents yet another major obstacle.
What is the impact of inflation on Millennials and Gen Z?
As prices increase all around us, Millennials and Gen Z are feeling the impact of inflation more than any other generation. Because many in this age range are early in their careers, their wages remain lower than older generations. Although many are ready to become homeowners and start families, finances are holding them back.
Homeownership has long been a challenge for Millennials and Gen Z. Inflation has made this milestone even more difficult to achieve. Data from the National Association of Realtors (NAR) shows the median home price in July 2022 was nearly 11% higher than last year. Additionally, interest rates on mortgages have doubled from 3% to 6% throughout this year alone.
Student debt is one of the biggest obstacles standing in the way of homeownership for Millennials and Gen Z. In fact, the NAR reveals that a high debt to income ratio was the number one reason buyers between the ages of 31-40 were denied home loans. Student debt decreases the credit worthiness of Millennials and Gen Z and makes it harder to save up for a down payment.
As a result, many continue to rent their homes. Unfortunately, inflation is also driving rents through the roof. According to the Zillow Observed Rent Index, rent across the United States has increased nearly 16% between May 2021 and May 2022. Because nearly 66% of people under the age of 35 rent, rising costs impact younger generations more.
Millennials and Gen Z cite high rental costs and student debt as some of the top reasons they’re unable to save for a down payment. As rents increase and inflation outpaces wage growth, homeownership is further out of reach.
What is the impact of inflation on Maryland residents?
Marylanders already have a higher cost of living than the United States average. In fact, Maryland is the 6th most expensive state in the country. If you live in the Baltimore, Columbia or Towson areas, you already spend nearly 7% above the national cost of living average.
With inflation, many Marylanders are struggling to keep up with rising costs. According to WMAR, 38% of Marylanders are struggling to make ends meet. Even more challenging is the fact that inflation is highest in areas where people can only cut back so much—if at all.
Groceries, gas and housing costs have risen the fastest. Although little can be done individually to mitigate rising costs on rent or mortgage payments, there are plenty of ways for you to maximize your budget.
How can Millennials and Gen Z reduce spending during inflation?
Determine how much you can afford to save
When times get tough financially, it’s even more important to have a savings account. This provides a cushion of emergency funds and helps you continue building towards long-term goals.
Take an inventory of your important expenses, so you know exactly how much you need to set aside for necessities. Then, allocate a portion of the remaining funds to spending money and savings. Once you’ve identified the amount you can consistently put away at each pay day, make it a habit to immediately transfer that amount to a savings account that you don’t touch.
Work towards paying off your debts
It can be tempting to put new expenses on credit cards, but this kind of high-interest spending can accumulate fast. Instead, focus on paying down your debts as quickly as you can reasonably manage. This will ultimately help you save money since interest builds fast on credit cards.
Use SECU’s budget calculators to set manageable payments, track your spending and take better control of your finances.
Manage your debt with a SECU balance transfer card
SECU balance transfer cards allow you to consolidate your debts into one simple payment. With a lower interest rate than typical credit cards, these allow you to pay off debts faster and save money in the process. Plus, you get the benefit of a lower overall payment, so you can better fit your payments into a tight budget. Learn more about SECU balance transfer cards.
Reduce your grocery bill
According to CNN, grocery costs have increased by more than 13% on average over the past year. Some items like eggs have risen a whopping 38%. While you might be able to save money in other areas by going out less often, you obviously can’t just stop buying groceries. Fortunately, there are a few ways to reduce your grocery spending:
- Shop at discount stores.
- Check the price by weight of products you buy to ensure you’re getting the most bang for your buck.
- Swap meat products for high-protein vegetarian options like beans and lentils.
- Take advantage of sales and coupons, and build your meal plan based on what’s most affordable.
Seek spending support from SECU
Whether you need guidance on how to manage your debts or advice on maintaining your financial goals amidst rapid inflation, we can provide one-on-one support to help you regain control of your finances. Resolve your budget challenges with a free financial wellness checkup from SECU.