Tue, 28 February 2023 | consumers
A new survey from LendingClub and PYMNTS finds that 60% of U.S. adults, including more than 40% of consumers with high incomes, reported living paycheck to paycheck as of January 2023, a decrease of 4 percentage points from January 2022. This drop shows that some consumers' financial conditions have actually improved as a result of spending reductions over the past year.
Also, it seems like customers are becoming used to the current financial climate. For instance, fewer customers now anticipate a worsening of their financial status, and more people have a positive outlook towards 2023.
"Consumers who were making ends meet decreased in the first month of 2023. Although it is too soon to draw conclusions about a trend, consumers have come to terms with the fact that they must deal with inflation on a daily basis and are actively altering their behavior, particularly during the holiday shopping season of 2022 "said Anuj Nayar, LendingClub's financial health officer.
Consumer optimism is rising, while discretionary expenditure is declining. Shoppers had a considerably more cautious stance when it came to holiday buying in 2022. According to data from November 2022, 15 million consumers—a 10% drop from 2021—said they would forgo holiday-related purchases.
Consumers' Credit Management Strategies
Consumers frequently use credit cards during times of heavy spending. For instance, 72% of consumers made at least one holiday transaction in 2022 using a credit card. Despite using their credit cards more frequently during high-spending periods, 87% of cardholders claim that their holiday season spending in 2022 has not resulted in a material financial hit, while 13% claimed that their debt load has increased very or extremely significantly as a result of the season.
Especially for those who live paycheck to paycheck, managing credit card debt is a key concern for consumers as they adjust to today's inflationary pressures. 70% of all cardholders surveyed said they took at least one action to help them manage credit card payments in the past year. Consumers who are living paycheck to paycheck are more likely to change how they use credit cards, with a 90% increase among those who have trouble paying their payments compared to an 81% increase among those who don't. Budgeting and cutting back on spending were popular techniques used by 32% and 31%, respectively, of cardholders.
Consumers continue to have a financial backlog that they will carry into the foreseeable future even as they modify their spending habits to fit the demands of the current economic situation. The average consumer has credit card debt equal to 35% of their available savings, but people who are living paycheck to paycheck typically have more debt than they do savings. According to the data, people who live paycheck to paycheck and have no trouble paying their bills have average outstanding credit card balances equal to 62% of their available savings, while people who struggle to make ends meet have balances that are 157% of their savings, meaning they would still owe money even if they emptied their savings accounts.
While consumers are changing their behavior to adjust to the pressures of inflation on their wallets, Nayar noted, "it may not be enough to balance their finances." "Massive credit card debt is carried by customers of all income levels, and if debt interest rates rise, they may soon equal the savings balances of all consumers living paycheck to paycheck1. Now is an excellent moment for consumers who want to reduce their overall debt load to think about consolidating and/or refinancing their debt into an installment loan."