ALICE: The Financially Vulnerable American Household Amidst Inflation and Stagnant Wages

Over time, increasing costs and stagnant wage growth have left many Americans financially vulnerable – this group is referred to as ALICE (Asset Limited, Income Constrained, Employed). According to United Way’s United For ALICE program, 39 million households or around 29% of the population fall into this category. This figure does not include the approximately 11.5% of the total US population who live in poverty (equating to roughly 38 million people), as reported by the U.S Census Bureau. Stephanie Hoopes, national director at United For ALICE, explained that “ALICE is made up of essential workers such as child-care providers, home health aides and cashiers celebrated during the pandemic – these are individuals working low wage jobs with little to no savings who can only cover current needs but not easily generate surplus funds for investments or housing.” Brett House, an economics professor at Columbia Business School, added that “ALICE essentially describes what people in lower middle class households have experienced over several decades: they can just meet their basic requirements without generating a significant excess to invest in property or stocks and bonds”. According to experts, ALICE families are particularly affected by stubborn inflation. While low-income earners spend more of their income on necessities such as food, rent and gas (categories that have experienced higher than average price spikes), the lowest paid workers bear the brunt of rising costs despite witnessing wage growth in recent years. Greg McBride from Bankrate.com stated that “even though we’ve seen low to moderate-income scale wages grow, inflation has hit these households hardest.” The Federal Reserve responded with a series of interest rate hikes as persistent inflation became an issue since the Covid pandemic began. This led most consumer borrowing costs skyrocketing and putting many families under pressure. Inflation continues to prove stickier than anticipated despite numerous hopeful indications that Fed rates could soon be lowered again. Higher inflation has also been bad news for workers, as real average hourly earnings rose by just 0.6% over the past year according to data from the Bureau of Labor Statistics at the Department of Labour. With little ability to adjust their spending patterns and low levels in savings or investment accounts to draw on when facing difficulty, many families are relying increasingly heavily on credit cards to cover some expenses. Credit card debt reached an all-time high over recent times whilst personal savings rates declined substantially – adding further pressure onto ALICE households’ financial situations during this challenging time. Delinquency rates for credit cards have also risen sharply in the past year, reaching their highest level since 2011 according to Fed data.