DULUTH, Ga. — A brand-new monthly index has been released that seeks to measure the purchasing power of middle-income households between $30,000-$100,000.
Compiled by financial services provider Primerica, the Primerica Household Budget Index (HBI) looks at the difference between the growth in earned income and the change in the costs for necessities like food, utilities, health care, and gasoline to understand how the current economy is impacting middle-income households’ ability to maintain a budget, according to the company.
It also evaluates whether there are opportunities for middle-income families to save money or pay down debt versus using savings or increasing debt, Primerica added.
Primerica explained the HBI data is presented as a percentage.
How Index Works
“When the index is above 100%, this means middle-income households may have extra money left over at the end of the month that can be applied to things like entertainment, extra savings, or debt reduction,” the company said. “If it is under 100%, households may have to reduce overall spending to levels below budget, reduce their savings, or increase debt to cover expenses. The index uses January 2019 as its baseline. This point in time reflects a recent ‘normal’ economic time prior to the COVID-19 pandemic.”
According to Primerica, between 2014 and 2020, the HBI results recorded steady gains in purchasing power for middle-income families, with a peak of 102.8% in November 2020.
“This means that compared to January 2019, households were in a stronger financial position to pay their monthly bills because wage growth outpaced the cost of everyday goods,” Primerica said. “Increasing inflation then caused the index to plummet. In June 2022, it reached a low of 85.6%.”
In July 2023, the index rose slightly to 97.5% from 97.0% in June 2023.
‘Deeply Affected’
“The July index illustrates how deeply middle-income households were affected by the recent period of high inflation in which their income gains fell behind the rising cost of living expenses,” said Amy Crews Cutts, economic consultant to Primerica.
Primerica reported that since the baseline of January 2019, the average middle-income household has cumulatively spent around $3,150 more than budget on basic necessities. In line with this, if the pandemic and ensuing inflation would not have been a factor, the HBI today would be closer to 110%, the company stated.
“Middle-income households finally are pulling ahead, but the last 18-months of inflation has caused many to fall behind which accounts for the rising credit card debt we are currently seeing,” said Cutts.
‘No Consistent Measure’
In releasing its new measure, Primerica said there is not currently a consistent measure to track middle-income households’ purchasing power.
“While the Consumer Price Index (CPI) provides a comprehensive measure of inflation, it does not offer a clear picture of how the change in prices of necessities impacts middle-income households because it is weighted to include all income levels and aggregates expenses for rarely purchased items, as well as expenses for which households can plan,” Primerica said. “The HBI removes infrequently purchased or predictable expense items and focuses solely on the purchasing patterns of middle-income households, defined as those with incomes of $30,000-$130,000.”
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