Budgeting is a crucial skill for managing finances, but for many lower-class individuals, it can be an arduous and stressful task. Numerous factors complicate the process, making it difficult to achieve financial stability and security. Here, we’ll explore the significant challenges that lower-class people face with budgeting:
Insufficient Income
One of the most pervasive challenges lower-class individuals face is insufficient income. Many people in this group work low-wage jobs that do not provide enough money to cover basic living expenses, let alone save for the future. According to the Bureau of Labor Statistics, in 2021, the median weekly earnings of full-time wage and salary workers were $989, while those in the lowest 10 percent earned $479 or less.
Unpredictable Expenses
Lower-class families frequently encounter unpredictable expenses, such as medical emergencies, car repairs, or sudden job loss. These unforeseen costs can quickly derail a carefully planned budget, forcing individuals to take on debt or forgo essential expenses. Without a financial cushion to absorb these shocks, managing a budget becomes exceedingly difficult.
High Cost of Living
Housing, utilities, healthcare, and transportation costs have all increased, often outpacing wage growth. This leaves lower-income individuals with little to no disposable income, making it challenging to allocate funds for savings, debt repayment, or other financial goals.
Two major factors contributing to the current spike in the cost of living (COL) are rent and food costs. In America, rent has risen by over 6% in the last 18 months. In 2023, some cities even saw rent increases of more than 30% within a single year.
Limited Access to Financial Services
Access to financial services is often limited for lower-class individuals. Approximately 5.4% of U.S. households were unbanked in 2019, meaning they did not have an account at an insured institution. Many people in this group are unbanked or underbanked, relying on alternative financial services such as check-cashing outlets and payday lenders, which charge high fees and interest rates. Without access to traditional banking services, managing and tracking finances becomes more complex and costly.
Debt Burden
Debt is a common issue among lower-class individuals, often resulting from medical bills, credit card use, and high-interest loans taken out to cover basic expenses. Based on SCF data, 51% of American households had credit card debt in 2022. Although credit card debt made up only about 7% of total household debt, it typically carries higher interest rates compared to other types of consumer debt, making it relatively costly.
Lack of Financial Literacy
Financial literacy is crucial for effective budgeting, but many lower-class individuals have had limited access to financial education. Without the knowledge of how to create and stick to a budget, understand interest rates, or build credit, managing money can be overwhelming. This lack of education can lead to poor financial decisions that exacerbate economic hardship.
Food Insecurity
Food insecurity is a pressing issue that complicates budgeting for lower-class families. In 2022, 36.7 percent of households with incomes below the Federal poverty line experienced food insecurity. With limited funds, making ends meet often means compromising on the quality and quantity of food. This can lead to health problems that further strain financial resources. Programs like food stamps can help, but they may not fully address a family’s nutritional needs, making it challenging to allocate money for other expenses.
Healthcare Costs
Healthcare costs can be a significant burden for lower-class individuals, many of whom lack adequate health insurance. According to the Commonwealth Fund Health Care Affordability Survey, fielded for the first time in 2023, among individuals enrolled in employer health plans, those with low incomes faced significant challenges with healthcare costs: 56 percent of people earning less than 200 percent of the federal poverty level ($29,160 for an individual and $60,000 for a family of four) reported difficulties in covering these expenses.
Out-of-pocket expenses for medical care, prescription medications, and emergency treatments can quickly deplete limited funds.
Childcare Expenses
For families with children, childcare expenses can consume a large portion of the budget. Quality childcare is often expensive, and lower-income families may have to settle for less reliable or safe options. This expense is necessary to allow parents to work, but it can strain the family budget, leaving less money for other critical needs.
Transportation Costs
Transportation is another significant expense for lower-class individuals, particularly those who live in areas with limited public transit options. The cost of maintaining a vehicle, paying for gas, insurance, and repairs can be substantial. Without reliable transportation, accessing better job opportunities and essential services becomes challenging, perpetuating the cycle of poverty.
Housing Instability
Affordable housing is scarce, and lower-income individuals often spend a disproportionate amount of their income on rent. Housing instability, including frequent moves or the risk of eviction, can disrupt budgeting efforts and lead to additional costs such as security deposits and moving expenses. Stable housing is fundamental to maintaining a budget, but it remains out of reach for many in the lower class. In 2020, 25% of renters spent more than half of their income on housing.
Limited Access to Affordable Credit
Access to affordable credit is crucial for managing financial emergencies and building a stable financial future. However, lower-class individuals often have limited access to low-interest loans and credit cards. Instead, they may rely on high-interest payday loans or other predatory lending options, which can lead to a cycle of debt and financial instability. In 2020, the average annual interest rate for payday loans was approximately 391%. Without affordable credit, it is challenging to handle unexpected expenses or invest in opportunities that could improve their financial situation.
Systemic Inequality
Systemic inequality, including discrimination in hiring practices, wage disparities, and unequal access to education and resources, further complicates budgeting for lower-class individuals. These systemic barriers can limit job opportunities, reduce income potential, and increase expenses, making it more difficult to create and maintain a budget.
Social Pressures and Expectations
Social pressures and expectations can also impact budgeting for lower-class individuals. The desire to provide for family, participate in social activities, and maintain a certain standard of living can lead to spending beyond one’s means. This can result in financial strain and difficulty sticking to a budget.
Mental and Emotional Stress
The mental and emotional stress associated with financial insecurity can significantly impact the ability to budget effectively. Constant worry about making ends meet, paying bills, and dealing with debt can lead to decision fatigue and poor financial choices. This stress can also affect overall health and well-being, creating a vicious cycle that further complicates financial management. The American Psychological Association reported in 2021 that 64% of adults cite money as a significant source of stress in their lives.
