Inflation and rising costs pushes Americans to make risky financial choices: Survey

With budgets strained, some Americans are embracing risky financial behaviors to make ends meet, a recent survey said.

High inflation and interest rates pushed 35% of Americans to drain cash or consider draining cash from emergency savings and 26% have skipped or are considering becoming delinquent on their credit cards, loans or other debt, according to a survey from fintech company Achieve.

When broken down by generation, Gen Z and Millennials were most likely to consider higher-risk options, the survey said. 

Twenty-eight percent of Gen Z have already or are considering bankruptcy as an option to deal with rising costs. Additionally, 39% said they either missed payments or were considering it when it came to paying credit cards, loans and other debt. Thirty-four percent of Millennials said the same when it came to paying their debt obligations.

“Many money-saving strategies, like cutting back on discretionary spending, consolidating debt and taking on extra work to earn more money, are prudent choices in any economic climate,” Achieve Cofounder and Co-CEO Andrew Housser said in a statement. “But other tactics, like borrowing from retirement savings, pawning valuables and missing debt payments, often mean risking your long-term financial security.”

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Consumers face credit crunch

Today’s challenging economic environment has made accessing credit difficult for some consumers. Rising interest rates and the recent banking crisis have added to that credit crunch. 

The Federal Reserve raised interest rates 25 basis points at its most recent meeting, defying economists’ predictions that it would pause its monetary policy in response to the failures of Silicon Valley Bank (SVB) and Signature Bank. 

The ongoing interest rate increases mixed in with the banking crisis were equivalent to two to three 25 basis-point rate hikes and could lead to more significant credit tightening, making it harder for consumers to borrow, Moody’s Analytics Chief Economist Mark Zandi said in a CNBC interview. 

“The Fed got it wrong when they kept rates too low for too long coming out of the pandemic,” Zandi tweeted in reaction to the Fed’s interest rate announcement. “It’s unfair to be too critical given the uncertainties created by the pandemic. And then there is the Russian invasion. But they now risk raising rates too high too fast. That will be on them.”

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How engaging in risky financial behavior hurts you

Risky financial behavior like defaulting or reducing monthly debt obligations could hurt a consumer’s credit score. A lower score could mean less access to borrowing or make options more expensive, especially in a high-interest rate, tight credit lending environment.

“Credit card issuers and other creditors tend to view people with limited or shorter credit histories as riskier, resulting in higher interest rates and lower credit card limits than individuals with longer credit histories and more experience managing debt,” the survey said.

Other less risky options to fight inflation and rising costs can include setting short- and long-term financial goals and using that to build a budget, the survey said. Thirty-five percent of respondents said they adjusted their household budget and 41% cut back on discretionary spending.

Many Americans (38%) also looked to cut back on grocery purchases as food prices soared. Food costs were up over 10.2% year-over-year in February, according to the Consumer Price Index, a measure of inflation.

“In addition to cutting back on grocery purchases and discretionary household spending, many Americans are exploring options or already in the process of growing their own fruits and vegetables,” the survey said. “And given the recent spike in egg prices, it’s no surprise that interest is growing in raising chickens at home to produce eggs.”

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