The monthly Primerica Household Budget Index™ (HBI™) shines a light on how the economy impacts families’ bottom lines.
The key to developing any financial budget is knowing not only how much money you have coming in but how much you plan to spend in any given month. For middle-income families, however, the volatility in the price of everyday necessities can add complexity to what’s often seen as a simple equation.
Planning for items such as a monthly mortgage, student or car payment is relatively easy, given their mainly static nature. But accounting for the ever-shifting cost of items like groceries and gas can be difficult, especially for middle-income families who are disproportionately impacted by price swings due to spending a higher percentage of their budgets on everyday necessities. And until now, no consistent measure of the purchasing power of these households existed.
That’s why Primerica created the Household Budget Index™ (HBI™). This first-of-its-kind monthly tracker looks at the difference between earned income and the cost of necessities like food, utilities, health care and gasoline to better understand how the current economy is impacting families’ ability to make ends meet at the end of every month. This provides insight into whether households are able to save money and pay down debt or need to use their savings/or increase debt. Essentially, the HBI™ assesses whether middle-income families can get ahead financially or are falling further behind.
“Understanding the purchasing power of middle-income households from month-to-month will make our guidance even more precise as we serve the financial needs of middle-income families,” said Glenn J. Williams, CEO of Primerica. “The principles we teach, coupled with this ongoing research, will help families in their efforts to achieve financial security.”
The HBI™ data is presented as a percentage. When the index is above 100%, it means middle-income households may have extra money that can be applied to things like entertainment, savings or debt reduction. If it is under 100%, households may have to reduce spending, decrease savings or increase debt – often credit card debt – to cover expenses. The HBI™ data is updated every month and uses January 2019 as a baseline because it reflects the most recent timeframe of “normal” economic activity prior to the pandemic. As a result, January 2019 sits at 100% on the index.
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. Increasing inflation then caused the index to plummet. In June 2022, it reached a low of 85.6%.
Over the past year, the HBI™ results have slowly rebounded, and the most recent reading shows that the July index rose slightly to 97.5% from 97% in June, indicating middle-income households are continuing to gain some relief in their budgets.
“The current 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, Ph.D., CBE®, economic consultant to Primerica.
Since the baseline of January 2019, the average middle-income household has simulatively spent around $3,150 more than budget on basic necessities. “Middle-income households are finally 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.
While the upward trend of the HBI™ data of the past year shows an increase in the spending power of middle-income families, it also illustrates that lingering inflation and the resulting high cost of necessities continues to strain household budgets. Overall, middle-income families remain in recovery mode, and it will take some time for them to fully recover from the rise in debt and fall in assets that occurred during the height of the pandemic.
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