In the United States, higher costs and limited wage growth have resulted in a significant portion of the population facing financial insecurity. United Way’s United For ALICE program coined the term “ALICE,” which stands for Asset Limited, Income Constrained, Employed, to describe households that earn above the poverty line but still struggle to make ends meet. Approximately 29% of American families, totaling nearly 40 million households, fall into this ALICE 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. ALICE individuals are often child-care workers, home health aides, cashiers, and other low-wage workers who are just one emergency away from falling into poverty. Columbia Business School economics professor Brett House notes that these households can cover their basic needs but struggle to generate a surplus for major expenses like homeownership or investments in stocks and bonds.
The Impact of Inflation on ALICE Families
The persistent issue of inflation has exacerbated the financial challenges faced by ALICE families. Low-income households have been hit the hardest by rising prices, as they spend a larger percentage of their income on essential items such as food, rent, and gas. Despite some wage growth in the low to moderate-income scale, inflation has outpaced these increases, making it difficult for ALICE households to keep up with the rising costs of living.
Since the onset of the Covid-19 pandemic, inflation has surged to levels not seen since the early 1980s. The Federal Reserve responded with multiple interest rate hikes, which pushed borrowing costs higher for consumers. This has put additional strain on ALICE families who may already be living paycheck to paycheck. While there were hopes that the Fed would be able to cut interest rates to alleviate some of the financial pressure, inflation has proven to be stubborn, keeping rates high and making it challenging for ALICE individuals to see an improvement in their wages.
Challenges Faced by ALICE Families
With limited resources and savings, ALICE families have few options for reducing expenses or improving their financial situation. Some households have turned to credit cards to cover essential bills, leading to a spike in credit card debt. The personal savings rate has declined, while credit card delinquency rates have reached a 12-year high, according to Federal Reserve data. This reliance on credit further exacerbates the financial insecurity faced by ALICE families, as high-interest rates and debt can lead to a cycle of financial hardship.
Overall, the challenges faced by ALICE families highlight the urgent need for policies and support systems that address income inequality, rising costs of living, and financial instability. Without intervention, these households will continue to struggle to make ends meet and build a secure financial future for themselves and their families. It is crucial for policymakers, employers, and communities to work together to provide resources, opportunities, and assistance to help ALICE individuals break free from the cycle of poverty and financial insecurity.
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