Looking Beyond Headlines: The Real Story Behind Rising Household Costs

While the broader economy has shown resilience, many households, particularly middle-income families, are feeling the strain of rising costs for everyday essentials. In the latest edition of her Point of Impact newsletter, Consumer Bankers Association (CBA) President and CEO Lindsey Johnson notes that the current economy increasingly reflects a K-shaped dynamic: some households are benefiting from growth in assets and wages, while others are struggling to keep up with the cost of living. As importantly, CBA’s latest work demonstrates the biggest and fastest growing expenses for the average American are everyday essentials: healthcare, housing, food and vehicles.

American consumer (and the broader economy) resiliency has been in large part driven by the financial tools available to help them weather expense shocks facing families today. In our last piece, we explored bank products such as home equity, credit cards, and other bank services that provide these shock absorbers. 

Yet, to fully understand how Americans are managing through this economy, it is critical to not only assess the greatest drivers of rising costs today, but the different tools they are utilizing. 

401(k) Withdrawals Hit Record High as Americans Seek Liquidity

The Wall Street Journal last week highlighted new analysis from Vanguard that found a record share of Americans are digging into their retirement savings because of financial emergencies. Last year, a record six percent of workers in 401(k) plans took a hardship withdrawal, up from 4.8 percent in 2024 and a pre-pandemic average of about two percent according to Vanguard. For context, a 401(k) hardship withdrawal is an emergency distribution allowed by the IRS for "immediate and heavy" financial needs.

• The rise in hardship withdrawals marks the sixth consecutive year of increases since 2018, when Congress made it easier for workers to access these funds by removing the requirement to first take a 401(k) loan.
• The most common reasons for withdrawals last year were to avoid foreclosure or eviction and to cover medical expenses. The median withdrawal totaled $1,900.

While these hardship withdrawals are noteworthy, it is also important to consider that many workers have seen their 401(k) balances grow in recent years, driven by strong stock market performance and plan design improvements that make saving easier.

Americans Struggle to Contend with Rising Expenses

Fox Business similarly has covered the strains middle-income Americans are facing as they struggle to keep up as living costs weigh on paychecks. According to a nonprobability-based analysis by Primerica:

• “68% of middle-income Americans said their income is falling behind the cost of living – a figure that has remained steady in the last two years. […] 49% of middle-income American families said their primary financial goal for the year ahead was to simply keep up with rising costs.”

Outside of macro-level economic data, research from the JPMorganChase Institute released this fall found that for many workers, steady employment does not translate into steady income.

• Even if annual earnings and hourly wages appear stable, many workers experience significant month-to-month income – and as importantly – expense fluctuations. These swings create real financial risk for households, making it harder to plan for bills and expenses and leaving families less prepared to absorb unexpected costs.

Collectively, these dynamics and financial pressure points are influencing broader economic sentiment. Data from the CBA Chart Book for Q4 2025 shows consumers continue to blame high prices for their sour mood on the economy and the personal savings rate (income minus expenses) has been declining, reaching its lowest point since November 2022.

Different Households Turn to Different Financial Tools

When unexpected expenses arise, American households rely on a range of financial tools depending on their financial circumstances and access to credit. Homeowners may tap home equity through a home equity line of credit (HELOC). Workers with retirement savings may borrow against a 401(k) or, in cases of financial emergency, take a hardship withdrawal. Others may rely on credit cards to smooth spending or cover short-term gaps, while some consumers turn to overdraft services when other options are not available or practical.

Each of these tools comes with different tradeoffs and costs. Borrowing against assets such as a home or retirement account can involve interest payments or, in the case of hardship withdrawals, taxes and IRS penalties that can exceed 10 percent of the withdrawn amount and lead to diminished retirement savings. Credit products may involve interest charges, and transaction-based liquidity tools can carry fees. While these costs vary depending on the product and the consumer’s circumstances, they all reflect the broader reality that access to liquidity during periods of financial stress is rarely free.

Understanding how these costs compare to the broader pressures facing households is critical.

The Real Drivers of Household Financial Strain

To better understand the biggest expenses American families face today, CBA released new research last month by Dr. Alexei Alexandrov that examines the biggest and fastest growing expenses over the last decade (2013- 2024). Using Consumer Expenditure (CEX) Survey data supplemented by Personal Consumption Expenditures (PCE) data, Dr. Alexandrov found that four major expense categories account for two-thirds of all expanded spending.

For an average household, which earns approximately $104,207 a year (about $68,000 after taxes), their primary cost centers each month are:

• Healthcare ($6,197 per household, not including employer-related expenses),
• Shelter ($19,116 per household),
• Food ($10,163 per household), and
• Vehicles ($10,673 per household, excluding gas).

Importantly, the data shows that credit card interest is not the primary driver of affordability challenges. By incorporating the CFPB’s most recent credit card interest data into his broader analysis of household spending, Dr. Alexandrov’s research found that while credit card interest is a real expense, the interest portion of consumers' credit card payments remain a relatively small slice of the overall affordability picture. In 2024, interest accounted for roughly $100 a month on average, a little over one percent of the average household budget.

To Provide Relief for Hardworking Americans, Policymakers Should Protect the Financial Tools Helping Families Manage Through Volatility

America’s leading retail banks have long helped consumers navigate economic uncertainty by ensuring continued access to safe, regulated financial tools. Products like credit cards, overdraft services, and other short-term liquidity options offered by banks provide critical flexibility when families encounter financial shocks.

As policymakers continue to debate how best to address affordability pressures facing consumers, it is critical they solve for true sources of affordability, not weaken the very system that provides families access to the products and services helping them manage through uncertainty without sacrificing their long-term financial security.

CBA Advocacy

• Last month, CBA released a white paper authored by economist Dr. Alexei Alexandrov, “Affordability and Household Expenses, Big and Small: Evidence from Public Federal Data 2013–2024,” analyzing how American household income and expenses have evolved over the past decade, examining the key areas that today’s consumers are struggling to afford, and key considerations for policymakers. To read the full white paper, click HERE.
• CBA President and CEO Lindsey Johnson released the second edition of her quarterly newsletter, “Point of Impact,” examining affordability and the American consumer. To read the full letter, click HERE.