Finances Are Taking a Beating from Inflation

Two hands protecting a small house behind stacks of coins

Inflation. Stagflation. Recession. We’re hearing these terms, and others like it, every time we turn on the TV or go online. It can be confusing to understand just what these terms mean and if American’s are actually experiencing one of these events. But whatever economic phase we may be in, we’re all feeling the effects of increased prices just about everywhere. At the gas station. The grocery store. And just about any other place you spend your money for consumable goods.

But . . . what about “shrinkflation”? This is a term that highlights how inflation can affect us when manufacturers try to contain costs – by shrinking the amount of product delivered, and sometimes even increasing the price they charge for less product. It’s a tactic some companies use to “trick” their customers to believing the price hasn’t changed or changed much – but we’re actually getting less for our money.

On the way home from work last week, Jill asked me to stop by Shaw’s for a few things, particularly my favorite seltzer water. As I swiftly maneuvered my cart through the bread isle, past the canned goods, and up the soda isle, I came across what looked like a pretty good deal – two packages for 8 bucks.  But as I went to load it into my cart, I read the package and noticed what once held 12 cans of sparkling water had been downsized to 8 — with no change in price. Which means that not only is the package is 33% smaller, but the remaining cans are now 50% more expensive. Now, folks, I sometimes don’t mind paying a little more for something I really like – but this practice just seemed like trickery to me. Like everyone else, I don’t like feeling as though I’ve been duped. So I decided to go without my water this time.

But you know, it got me thinking about how much inflation has affected our purchasing decisions these days, as well as some of the methods companies are using to manage their own soaring costs. And it’s not just having to forego our favorite water. Inflation is having a dramatic and undesirable effect on many American’s ability to stay on track financially. 

Get this – according to a recent survey by Thrivent and Morning Consult, 76% of survey respondents said they’re being pushed off track financially by inflation to the point where 60% said it’s getting in the way of saving. In fact, only 28% said they were saving enough right now. Instead, they are having to redirect their efforts on short-term financial goals instead of saving for retirement or perhaps a child’s college education. 

According to the survey, called, “The Consumer Financial Outlook Survey” ₁, 59% of Americans reported that they’re living paycheck to paycheck, and 78% said they wished they had more breathing room in their finances, primarily because of the pressure inflation is putting on their wallets.

And consumers’ response to the current inflationary environment has the potential to be particularly damaging on their financial security as they forego future goals in order to make the present easier. Focusing on financial issues like increasing their income, bolstering their emergency savings or paying off debt now tends to be done at the expense of our long-term savings. 

And while most folks have options to better manage inflation within their budget, it seems many of us just aren’t able to execute on it. Living within your means, automating savings and having a goals-based strategy are three other areas identified in the survey that appear to have a real disconnect. For example, 85% of those surveyed said living within their means is very or somewhat effective, but only 68% do it. 82% said actively following a household budget is very or somewhat effective, but only 53% do it. 77% said automating savings is very or somewhat effective, but only 41% do it. And a full 76% said establishing a financial strategy to address short and long-term goals is very or somewhat effective, but only 43% do it.

Folks, there’s no magical formula or strategy that will make us inflation-proof, and we all know that we can’t control the markets. But you can control to some degree what you spend and save. For example, think about how you shop and for what. Are you fairly rigid about where you spend your money or do you buy only brand names? This could make inflation tougher on your budget.

Interestingly enough, the survey noted some key differences between Baby Boomers and Generation Z. For example, Boomers are far more able to adjust to belt-tightening. According to Nick Cecere, SVP and chief distribution officer at Thrivent, “They come from two different worlds, in a way. The world of Gen Z is more product-driven, consumer-driven and brand-driven. Boomers didn’t grow up worrying about whether they were grocery shopping at Walmart vs. The Windfall, so it’s easier for them to make adjustments,” he said. “The next generation didn’t grow up in the Boomers’ world, so they just don’t have the discipline a Boomer has.”

Boomers are also not feeling the impact on their finances as strongly, the survey found, as only 38% of Boomers said they felt price increases had impacted their financial goals. This could partially be due to the fact that most Boomers have an established financial strategy they can lean into. 

This is yet another crucial reason to ensure you have a retirement system in place – one with downside risk management as well as strategies to manage both short-term and long-term goals without throwing you off track.

So as always – be vigilant and stay alert, because you deserve more!

Have a great week.

Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, and Mansfield, MA. 

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