Americans Struggle to Spend Less After Payroll Tax Increase
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UPDATED: Mar 29, 2013
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A recent survey found that despite receiving less income due to the payroll tax increase, Americans are not changing their spending habits.
The survey, conducted by Accounting Principals showed that nearly one quarter of Americans have not reduced their spending habits, even though they earn an average of $130 less each month. The monthly income reduction is due to the two percent tax increase which started on Jan. 1, 2013.
Part of the reason could be due to high consumer sentiment. The Thomson Reuters consumer sentiment index, which measures consumers’ confidence in our market and economy, increased from 73.8 in January to 77.6 percent in February, contrary to economist forecasts.
In order to make up for the paycheck loss, some consumers are tapping into their savings accounts, retirement funds or resorting to high interest credit sources such as personal loans. In fact, the survey found that nearly one-third of employed Americans have pre-maturely pulled money from retirement funds such as 401(k)s and IRAs.
Jodi Chavez, senior vice president of Accounting Principals, said that it is interesting that savings is still not a priority for working adults.
“It’s clear most Americans don’t feel 100 percent secure financially, and don’t have expendable cash,” she said to loans.org. “Many people are likely working to address any current debts before focusing on long-term savings.”
But Chavez said that each individual must assess their own financial situation to decide what method is best, whether it is taking out a personal loan or tapping into retirement funds.
“There is no one-size-fits all method when it comes to borrowing,” she said.
The study found that food is a top expenditure for consumers. Sixty-five percent of surveyed adults said going to lunch or buying snacks is their biggest spending pitfall. Eighty-two percent buy coffee regularly, adding up to an average of $21 per week, and 89 percent spend money on lunch, averaging $36 per week.
“There’s a social and convenience factor associated with spending on food during the workday,” Chavez said. “Today’s working Americans are all busy and stretched for time. The planning and packing associated with bringing lunch to work is sometimes a time commitment that everyone can’t always stick to.”
This year’s results are similar to 2012, signifying that although working adults receive less money due to the payroll tax increase, they are not changing their spending habits.
“Although Americans are cutting back on some purchases during the week, it doesn’t seem to be enough to keep them from dipping into their long-term savings,” Chavez said.
For the consumers that did alter their spending habits, the survey found that it was usually by reducing non-essential spending such as restaurant visits, happy hours or shopping.