In the United States, there is a growing segment of the population known as ALICE, which stands for Asset Limited, Income Constrained, Employed. These individuals are households that earn above the poverty line but still struggle to make ends meet. According to the United Way’s United For ALICE program, nearly 40 million families, or 29% of the population, fall into this category. This figure does not even include the 37.9 million Americans who live in poverty, which accounts for an additional 11.5% of the total population.
One of the major factors contributing to the financial vulnerability of ALICE households is inflation. Inflation has been a persistent problem since the Covid-19 pandemic, with price increases reaching levels not seen since the early 1980s. As a result, low-income households, who already spend a significant portion of their income on necessities such as food, rent, and gas, have been hit the hardest. While there has been some wage growth in the low- to moderate-income scale, it has not been enough to keep up with the rising cost of living.
In response to rising inflation, the Federal Reserve has raised interest rates to their highest level in over 22 years. This has led to an increase in borrowing costs for consumers, putting additional financial pressure on households. Despite these efforts, inflation remains stubbornly high, making it difficult for the Fed to lower interest rates in the near future. This leaves ALICE households in a challenging position, as higher interest rates can limit their ability to secure higher wages.
As inflation continues to rise and interest rates remain high, lower-income households are finding it increasingly difficult to make ends meet. Many families are turning to credit cards to cover essential expenses, leading to a spike in credit card debt. In fact, credit card debt has reached an all-time high, while the personal savings rate has fallen. This reliance on credit cards has led to an increase in delinquency rates, creating additional financial strain for ALICE households.
The financial vulnerability of many Americans, particularly those in the ALICE category, continues to be a pressing issue. Rising inflation, coupled with sluggish wage growth and high interest rates, has left many households struggling to make ends meet. As policymakers continue to grapple with these economic challenges, it is essential to find solutions that support the financial well-being of all Americans, especially those who are most vulnerable.