Will inflation control us or the other way around?
– By Lisa Rutherford –
While millions are trying to maintain their simple lifestyles, others are making out like bandits during this inflationary time.
Take the CEO of Chipotle, Brian Niccol. He made $38 million in 2020. That’s 2,898 times more than the median store-level employee. Even as profits soared, Chipotle raised prices by 10% over the two-year 2020-2022 period. Thereby, putting more stress on the pockets of average Americans who eat there while their CEO lives in the lap of luxury.
Chipotle is not the only problem. Starbucks has also hiked prices even as profits soared last year by more than 30%. And their CEO Kevin Johnson received a 40% boost in compensation, which compared to the prior year totaled more than $20 million. The company, when questioned, said that CEO pay and compensation could not be compared to product cost. It’s true that the two are determined based on different criteria, but that doesn’t mean they aren’t linked. If the company makes more money by raising prices for which people seem willing to pay, CEOs benefit. The typical CEO-to-worker ratio is about 350 to one, which is extraordinary in my opinion.
For companies like Chipotle and Starbucks to raise their product prices and pamper their CEOs, as they have when inflation was already raising gaining steam and while they were already making profits, certainly adds to the overall problem of inflation. But companies such as Chipotle and Starbucks are only part of the problem.
In May 2021, a little over year ago, America’s economy was bouncing back following the initial stages of the pandemic with the help of trillions of dollars of fiscal stimulus. There was some concern that inflation might result, but the Federal Reserve’s chairman, Jerome Powell, said he was not even thinking about raising rates. Now, a year later and with inflation continuing to increase, he and President Biden met to figure out what steps to take.
It’s an incredibly pesky problem, that I’ve written about previously. No one person is totally in control of the situation—not Powell and not Biden. It’s a worldwide problem currently. But some such as Chipotle’s and Starbucks’ CEOs should certainly not be feeding at the inflation trough.
As was made clear, even last year, the stimulus checks and pent-up demand after a year of covid meant people were out buying again and putting demand on the supply chain. But that was last year, and the stimulus checks were not the only problem. So, blaming it on government spending does not help the situation either. In fact, the stimulus checks helped many pay off their credit card debit. But, again, that was the past, and now credit card debt is way up! The government didn’t do that; people did it themselves. Consumers are adding to the problem. Yes, inflation has created a situation in which people feel the need to use credit, but are they really using it well. Or, are they just spending on many unnecessary things rather than focusing on what’s truly necessary?
And with the feds poised to raise interest rates more, using credit cards will only get worse for those already deep in debt or those headed that direction.
Financial planner and author, Dan Wyson, recently wrote about “America’s growing financial illiteracy” and made some salient points about the lack of financial knowledge on the part of many in our society. He specifically targeted the young. Unlike those of the Greatest Generation, who learned about privation and saving, and many in the Boomer generation, who learned from their parents’ generation, generations that followed are used to a life of plenty and spend freely. It does seem that kids are not being taught at home how to wisely manage money since they see “buy more” as the rule. As we know, Amazon is always at the ready to satisfy their need!
But according to Finder.com credit statistics perhaps younger Americans are on a better track. “Americans younger than 30 have the lowest amount of credit card debt among all Americans at 6.3%.” “Americans aged 50 to 59 just barely hold the most credit card debt at 22.6%.” Of course, those in the 50-59 age group are often in the prime earning time of their lives. Americans who earn less than $25K have an average debt of $3,000. 14% of Americans own ten cards! Generation Z (born 1997-2012) owns the lowest average number of cards at 1.4.
Impulse spending seems to be a problem though. A survey done in May of this year showed that 73% of respondents, three in four, stated that most of their purchases tend to be spontaneous—a jump from 59% in the previous year’s study. So, inflation is a problem, but when people are buying spontaneously a good deal of the time without giving adequate thought to those purchases, that is adding to the problem. The average person spends $315 per month on impulse purchases, up from $276 in 2021. And the most the average person will spend on a single item is $310, also up from 2021, which was $277. Now, you can say inflation caused that cost increase, but we decide whether to spend the money or not. And, impulse means you didn’t plan it. Those who let their whims determine their actions are bound to have some problems.
Savings rates have dropped to their lowest levels since 2008. In the first quarter of 2022, 537 million new credit card accounts were opened!
Here are some things to consider. American children have 40% of the world’s toys but are only 3.1% of the world’s children. The average American family spends $1,700 on clothes annually and throws away 65 pounds of clothing per year!
Some are warning that by pulling back on our spending a recession may result. But let’s get control of one problem at a time. Currently inflation is the problem not a recession. Increases in the minimum wage and rising employee salaries are making people feel more flush and ready to spend, also driving inflation. Many have the “fear of missing out” on life experiences, pushing them to spend and travel more. Yes, the cost of necessary items such as food and gas have gone up, but individuals can manage that better than they are. It’s apparent that is not being done very well. Let’s not condemn President Biden and others for our own lack of self-control. If we spend at Chipotle, Starbuck, Amazon and others—many who are raising their prices—we are helping their bottom line but hurting ours.
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