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3471Rising costs are forcing millions of Americans to make hard choices, and for many, that means giving up what makes life enjoyable. With inflation still high and a new wave of tariffs set to push prices even higher, low- and middle-income households say they are being squeezed harder than ever.
“We can’t just stay inside because everything’s too expensive,” Rachelle Biennestin, a 31-year-old teacher earning about $79,000 a year, told MarketWatch. After her rent jumped $400 and grocery prices climbed, she cut out clothing purchases and nights out. She managed to put away $2,600 this year, though it came with sacrifices that weighed heavily on her. Despite holding a master’s degree, she says it still feels like she’s barely making it.
A Growing Divide
The Trump administration’s on-again, off-again relationship with tariffs on imports from Canada, Mexico and China is expected to add over $1,000 per year to household expenses. That’s on top of already high prices for housing, car insurance, and utilities. For lower-income households, these necessities consume about 95% of after-tax income, according to Bank of America, which cited the Bureau of Labor Statistics.
“Prices need to drop, but these tariffs are just not going to help anything,” Biennestin said. “It’s not sustainable for people with good jobs to sacrifice their happiness.”
While consumer spending grew 4.2% in the final quarter of 2024, that growth was driven mostly by high-income households. Middle-income Americans—those earning $50,000 to $99,000—and low-income households under $50,000 are much more cautious.
A recent survey from Intuit Credit Karma data shared with MarketWatch found that 72% of middle-income earners are cutting back on nonessential spending. For lower-income households, 62% reported the same.
“We Are a Paycheck-to-Paycheck Nation”
Tiffany Morrison, a single parent making $24 an hour, has made major cuts just to stay afloat. She dropped Amazon Prime, downgraded her Netflix plan, and switched from T-Mobile to Mint Mobile. These moves together will save her approximately $2,000 per year, she told MarketWatch.
Joe Wadford, an economist at the Bank of America Institute, pointed out that the lowest earners already spend nearly all of their income on essentials. According to Wadford, lower-income Americans have to work a little bit harder than their middle- or higher-income-household counterparts to keep up with the cost of living.
Bank of America data also shows that rent and mortgage payments for lower-income customers rose 11% in February compared to 2023, more than the 9% seen by higher earners. Insurance and utility payments are up, too, putting additional stress on already stretched budgets.
Even grocery shopping has changed. Lower-income families now spend more than 3.75 times more at value stores than at premium grocers, and that gap has widened steadily over the past three years.
A Pessimistic Outlook
Despite a strong labor market on paper, the mood is gloomy. Two-thirds of consumers expect unemployment to rise in the next year—the highest level of pessimism in a decade, according to a University of Michigan survey.
“The financial stress expressed by middle-income families in our survey results is driven by persistent concerns about inflation and the high cost of essentials,” Peter Schneider, president of Primerica, told MarketWatch.
In Primerica’s December survey, 73% of respondents said they’re cutting nonessential purchases, and 84% are eating at home more often. Many also say they’re unable to save for emergencies or the future. Just 59% said they could cover a $1,000 unexpected expense.
Trying to Stay Afloat
Still, many are doing what they can to stay on track. Financial advisers suggest prioritizing high-interest debt, cutting unused subscriptions, and switching to cheaper services. But that’s cold comfort when basic living costs continue to climb.
“We are essentially a paycheck-to-paycheck nation,” said Mark Hamrick, senior economic analyst at Bankrate.
The divide between high-income and everyone else is growing. And while affluent households drive much of the spending data, the reality for most Americans is a constant struggle to balance survival with any sense of joy.
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