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Inflation may be cooling, but Americans are still feeling the squeeze in their pockets and summer travel isn’t the exception. According to a recent survey by Ally, 85 percent of respondents say traveling abroad is at the top of their bucket list. Yet, about three-quarters say their finances are holding them back from crossing this and other items off their lists.
How inflation is affecting summer travel plans
Last June, inflation peaked to levels not seen since the 1980s. Although it has cooled down since then, prices for goods and services are still high and Americans are struggling. In TransUnion’s latest Consumer Pulse study, 46 percent of respondents said their salaries aren’t keeping up with inflation, making it harder to save money and impacting discretionary spending.
“It’s not necessarily about the cost of the vacation that’s the issue, it’s the cost of everything in our day-to-day-life, which means we don’t have enough money saved up to go on that vacation.” Derek Sall, founder and lead of Life And My Finances, says. To add some perspective, the travel price index (TPI) has only risen by 2.8 percent — compared to last year — as per Statista’s latest data. Meanwhile, the consumer price index (CPI) has risen by nearly 5 percent.
“When the highest-cost items of everyone’s spending go up by 10 to 20 percent, it’s no wonder people are pulling back on retirement contributions and choosing to scale back their vacation plans,” Sall adds.
What consumers are doing to cope with smaller budgets this travel season
Even if inflation has put a dent on American’s budgets, summer travel is still on the cards for many. Scaling back on lodging and swapping dates are some ways travelers are carrying on with their vacation plans.
“When my family of four decided to go to Hawaii for a summer vacation with my parents, we saw the trip would be more than anticipated as compared to our last visit there the year before,” Riley Adams, CPA and founder of Young and the Invested, says.
Adams and his family originally had planned to spend several days at a hotel waterpark as a way to kick off their summer vacation before their family trip, which came down to about $2,000 between food, lodging and park passes. “We decided a trip to Hawaii would be more rewarding and felt the waterpark trip could be downsized to a single overnight stay, making it easier on the wallets and everyone’s summer schedules,” Adams says.
This slight change in their vacation plans allowed him and his family to save about $1,500, which was enough to offset the cost of higher airfare to Hawaii and the cost of a larger rental car.
“My oldest daughter is working in Dresden, Germany, this summer as part of a research internship — she’s in college,” Kelly Phillips Erb, tax attorney at White and Williams LLP, says. “We had hoped to take the whole family over to visit her, but airfares are just prohibitive. For the four of us to fly, airfares are around $10k for mid-June, which was our original plan.”
This higher airfare pricing made Phillips Erb rethink her whole trip schedule, swapping her original travel dates to the end of the summer and traveling to second cities to make their trip more affordable.
Is financing a vacation a good idea?
While you may be tempted to take out a personal loan or use your credit card to finance your vacation, you may want to think it over twice before you do. Although both personal loans and credit cards can lessen the financial impact by allowing you to pay off your vacation in installments, if not handled with care, it can lead to some serious financial woes.
“If you don’t have the money, you shouldn’t spend it — even if it’s a memorable vacation. It’s just not worth the interest, the headaches of debt, and the potential risk of going bankrupt down the road if other areas of your financial life go south,” Sall says, while adding that his most memorable family vacation was going to a hotel close by that had a pool and a game room.
“Don’t assume that your trip overseas is going to be a memorable one for your child. There’s tons of fun you can have in your own backyard for far less money,” he adds.