As the holiday season approaches, a new PYMT and LendingClub report, “New Reality Check: The Paycheck-to-Paycheck Report – The Holiday Shopping Deep Dive Edition,” released in November 2023, paints a detailed picture of how economic challenges are impacting consumer spending in the United States.
The report, based on a survey of 3,640 U.S. consumers, reveals a significant shift in holiday shopping behaviors, influenced by the continued trend of living paycheck to paycheck.
Conservative Spending Amid Financial Constraints
Despite a slowdown in inflation in 2023, the report indicates that 60% of consumers continue to live paycheck to paycheck, with 19% struggling to pay monthly bills. This financial strain is not limited to lower-income groups; a notable proportion of high-income earners also find themselves in this category. As a result, there’s a noticeable decrease in the number of consumers planning to make holiday purchases compared to the previous year.
Reduced Reliance on Credit
In a departure from previous years, consumers are showing a reduced tendency to finance holiday purchases with credit. Only 13% of holiday expenses are expected to be financed through credit, a marked decrease. This trend is more pronounced among those facing financial hardships, although their use of credit is also on the decline.
Savings Over Credit: A New Trend
An interesting development is the increased reliance on savings for holiday expenses. More than one-third of consumers, especially among the younger generations like Gen Z, plan to use their savings for holiday shopping. Some of these consumers might exhaust a significant portion, if not all, of their savings, indicating a shift towards immediate spending over long-term financial security.
Buy Now, Pay Later Gains Traction
The report also highlights a growing interest in Buy Now, Pay Later (BNPL) services, particularly among younger consumers and those experiencing financial constraints. This reflects a broader shift in consumer financing preferences and the evolving landscape of retail credit.
Diverse Payment Strategies
Consumers’ payment decisions for the holidays are varied, influenced by their financial standing. The mix of savings, credit, and other financing options reflects a nuanced approach to managing limited financial resources, with younger generations more likely to blend these methods.
A Reflection of Broader Economic Trends
The “New Reality Check” report paints a picture of the broader economic challenges facing U.S. consumers. The conservative approach to holiday spending, diverse financing strategies, and reliance on savings over credit underscore the ongoing impact of economic conditions on individual financial behaviors.
As we enter the holiday season, these trends highlight the financial realities of American consumers and changing consumer behavior.