Families Feel the Effects of Inflation as a Recession Nears

As inflation soars and a recession looms, families are moving, hustling, and seeking solid financial advice to guide them through the turbulence.

<p>Illustration by Michela Buttignol for Parents</p>

Illustration by Michela Buttignol for Parents

A May 2022 Pew Research study found that 7 in 10 Americans call inflation a “very big problem” for the nation. That stat may seem obvious to the average American parent, who’s been navigating increasing grocery and gas prices, an unsustainable housing market, and ongoing supply chain issues. Unfortunately, according to reports, when it comes to families and finances, things won’t be stabilizing any time soon.

The World Economic Forum reported that U.S. food prices jumped the largest 12-month spike in 40 years between April 2021 and April 2022. And a Credit Karma survey of 1,048 American adults showed that almost 40% of Americans are struggling to afford enough food, while 17% can’t pay their bills on time. What’s more, 41 percent of Americans don’t have an emergency fund, and 1 in 5 adults have no savings at all. In fact, according to the Experian credit bureau, the average debt balance in the U.S. “increased by 3.9% to $96,371 in 2021, a $3,644 jump.” That included mortgages, car loans, personal debt, and student loan balances, all of which increased last year.

Continued COVID surges, unemployment, and global insecurity have touched households all across the country. There is a wide regional variation in how hard inflation has hit Americans’ pockets. At the start of the year, the Congressional joint economic committee shared an interactive map that shows that Americans in the Mountain region—which includes Utah, Colorado, Arizona, New Mexico, Montana, Idaho, and Wyoming—are experiencing the highest inflation rates, with more than $500 a month in added household costs in January. But across the US, families are experiencing a rise of at least $350 per month in cost-of-living expenses.

There are no easy or one-size-fits-all solutions for families, but there is solidarity in knowing that other caregivers are expressing common pain points. Financial experts share ways families can get through what's to come.

Child Care Costs Are Unsustainable

Child care expenses are throwing parents into debt, and with many parents unable to keep up with the rising costs, some are leaving their jobs in search of work-from-home options. A 2022 Lending Tree report notes that Americans spend almost 20% of their annual income on child care—and that number goes up to 29% in some regions. 

Free lunch at schools used to be more accessible to all, but the Universal COVID-era free meal programs have expired and now parents fear that kids who can’t pay can’t eat. Although the national school lunch program still makes food available to children from low-income households, it doesn’t extend to struggling middle-class families whose finances have taken a recent downturn. 

"My son is finally in first grade, so full-time public school is free. He also gets free therapy through the state. We do qualify for free school lunch but my son, who has autism, only eats four things so we have to pack lunch for him anyway," says Lily E*, 33, a single mom of two living in Connecticut. "But my daughter is in preschool 5 days a week, 3 hours a day, and it costs $6,000. While she's at school, I schedule all my clients' site visits and deliveries for those three hours. Sometimes, if I have more to do after, I just pick her up and bring her with me. Otherwise, I work from home while she's there, which any working parent knows can feel near impossible!"

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Housing Prices Are Soaring

Wil Argyle, 42, is expecting his first child next year and looking to buy a house with his spouse. Argyle, a government worker living in Latin America short-term for his job, has concerns about being able to afford to move back to the U.S. and become a homeowner, even after a lifetime of frugal living. “Since I was 9, if you gave me a dollar, my mentor and teacher taught me to divide it into 10 cents for giving, 70 cents for savings, and the rest for myself,” says Argyle. But over the last decade, home prices in the nation’s capital have nearly doubled, with reports showing home values were up 22% over the past year. Even with a budget of $700,000, he’s not finding anything safe or big enough for his growing family. So he’s preparing to quit his seemingly stable job in the hopes of finding remote work or starting a business that will keep up with expenses.

He's not the only one who is house hunting and coming up short. Lily says that she moved into a tiny house 7 months ago with her 6- and 3-year-old kids because she was desperate to stay in the town where her oldest had already started school. She’s divorcing and trying to plan around her ex’s lost income, around $60,000 per year, with two jobs. Now, she makes a little more than half that amount as a sales and marketing manager. Her eldest child is autistic, which makes it hard to even think of moving towns. But in the city where she has the most support, the $1,200 rent for a 290-square-foot tiny house still feels steep.

“I realized that struggling financially means I had to take a look at the other aspects of my life and my children’s life that were suffering because I was hell-bent on staying in a town I couldn’t afford,” she confesses. “The idea of a tiny house was romantic and quaint, but the reality of it was a toll on my mental health, no one has any privacy or space to themselves, and while it has saved us some money, the cons outweigh the pros.”

Food Prices Are Soaring

Living paycheck to paycheck, Lily says her biggest expense is food. “We’re pretty frugal, but groceries are the one area where I can’t seem to lower how much we spend,” she explains. “As my son is autistic, there are literally maybe eight things he’ll eat, and he eats a lot of them. There’s no sneaking a cheaper brand of chicken sticks past him. It’s been impossible to cut corners with food.”

The U.S. Department of Agriculture predicts that in 2022 grocery prices are up at least 10% on top of a 13.5% rise between year-over-year from August 2021 and August 2022. And they continue to rise, which means families are facing food insecurity at alarming rates. In 2020 and 2021, 13.5 million U.S. households experienced food insecurity and 5 million children lived in food-insecure households. While the 2022 stats haven’t yet been published, these numbers are predicted to soar to unprecedented highs.

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Gas and Utilities Costs Continue to Rise

The U.S. Energy Information Administration reported that October 2022’s residential natural gas prices reached a multiyear high. The 2022 forecast for electricity is just as grim at an average 14.9 cents per kilowatt-hour for residential homes, up 8% from 2021. This means that families are using their very scarce resources to stay warm in the winter, cool in the summer, and keep the lights.

“Eleven percent of our monthly budget goes to utilities,” says Misty Jolhost, a Virginia wife and mom of three teens. When she married her high school sweetheart and set out to have a family, she didn’t realize that fifteen years later he would suffer a chronic condition that would keep him out of his stable union job in construction. Because she works as a freelance crypto consultant, her income is highly volatile and no longer balanced out by a second income. “Our electricity and gas bill is astronomical and we can’t seem to lower it, even with limiting our usage,” she laments. Overspending on utilities means undersaving on the kids’ 529 plans, which she had hoped to max out next year. For now, she says the only way that’s possible is if she gets different streams of income. Jolhost’s recession fears really come down to the daily possibility of getting downsized or furloughed.

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<strong>3 Steps for Overcoming Inflation</strong>

While it may seem like there's no end in sight for families facing rising costs and a possible recession, there are some smart steps parents can take to help shore their finances for the long hall.

Keep investing.

The sharp rise in cost of living means that Americans are making tough decisions that often minimize their ability to save and invest for the future. Certified Financial Planner, Patti B. Black, says the best thing to do is “ignore the noise and keep investing. Think of buying stock mutual funds/ETFs when the market is going down as buying when they are on sale.” It may seem counterintuitive to embrace the changes inflation brings, but books like The Psychology of Money can help put this present moment in the context of past recessions and point out opportunities for long-term gain.

Seek additional sources of income.

Similarly, rather than wait patiently for the economy to level out, Black advises people to look for opportunities to make extra income to strengthen their emergency fund and reduce debt. There is a particular urgency in finding another source of income, given how common cutbacks and layoffs are in this employment climate. Some side hustle options might include working part-time for a delivery service, doing online sales, or tutoring or child care in your neighborhood.

Reevaluate family expenses.

One small tactic is to cut memberships and subscriptions—especially online ones—that you don’t need or use much. A big tactic is to seek help from a financial planner or accountant who can be a life raft in a sea of financial turmoil. While you might think you don’t have the extra cash to spare for the advice of a money guru, affordable financial planners are often available through your existing ties with banks, credit unions, and employee associations. And most commit to helping you find ways to save or earn much more than the cost of their fee.

“Recently, my sister suggested I reach out to a financial advisor,” says Lily. “That has been a huge help in making sense of where money goes and what I can do to be more financially responsible.” Because, like so many people, Lily was never wasteful with money, she found it hard to self-identify more ways to save after she had stretched every dollar so thin. “Having another pair of eyes looking at the numbers helped,” she says. And that’s a big part of why she’s decided to move. With these outside insights, she realized that her family was sitting in their biggest bill.

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