The consumer from paycheck to paycheck cannot be saved by saving.
Inflation is still rampant, fluctuating between 8% and 9% and eating away at the purchasing power of our collective paychecks.
And since the P2P economy encompasses most of us — more than 60% of consumers at last count, with little left at the end of the month after paying basic fees — the impact is wide and deep.
It is well known that due to the pandemic, consumers in the US and at all income levels have been able to fill their savings, aided by stimulus measures and the fact that so much financial “dry powder” had built up as businesses closed and no one had much to go to. go outside.
But savings are declining, PYMNTS data shows that it’s not just a thinking exercise: Nearly half of U.S. consumers have had at least one unexpected expense in the past 90 days, with 56% of emergency costs more than Cost $400. In fact, the average consumer emergency cost was about $1,400.
From salary to salary is the norm
In addition, paycheck to paycheck living is becoming the norm, and as many consumers now live paycheck to paycheck with no problem paying bills as those who don’t live paycheck to paycheck. The wealthy are also not immune to these trends, as the proportion of high-income consumers living paycheck to paycheck has increased over the past year.
These are just some of the findings detailed in this edition of “New Reality Check: The Paycheck-To-Paycheck Report,” a collaboration between PYMNTS and LendingClub. The Emergency Spending Edition examines the financial lifestyle of American consumers who live paycheck-to-paycheck, the factors that create financial hardship, and how financial stressors, such as emergency spending, affect their ability to manage spending and set aside savings.
The series draws on insights from a survey of 4,006 U.S. consumers conducted from July 8 to July 27, as well as an analysis of other economic information and recent statistics, as found in the report “New Reality Check: The Paycheck-To-Paycheck Report.” : The Consumer Savings Edition,” in partnership between PYMNTS and LendingClub, show that Americans spend more than they take in.
The survey of 3,583 U.S. consumers to gauge how inflation and volatile markets affected them found that 13% of households had spent more than they earned in the past six months.
Dig a little, and the situation is even more common among the consumers struggling to pay the bills. About 40% of those consumers have spent more than they earned in the past 6 months.
There are two ways to ‘cover’ shortfalls: using credit or tapping into savings. We’re seeing evidence of the latter as savings wane, a trend that’s also crystallizing in official government statistics.
The Bureau of Economic Analysis said in its own most recent report that the savings rate as a percentage of personal income remained unchanged in July at 5% from June and down 5.2% from previous measurements this year.
The PYMNTS data shows that savings for people who live paycheck to paycheck but have no trouble paying their bills have fallen to just over $6,800, from over $8,300 at its peak. The situation seems a little dire for the paycheck-to-paycheck consumers struggling with spending, and where the average savings here is less than $3,000, up from over $4,000 at its peak.
We noted in other data that paycheck to paycheck consumers are more likely to prioritize easy access to money when choosing where to keep their savings, keeping an average of 70% of their money in banks, digital wallets or cash. By doing this, we claim, they can use those funds as needed, rather than allocating them to long-term retirement funds or other accounts meant to preserve (and grow) that money over time.
And increasingly, emergency spending is depleting reserves. As reported on Monday (Aug. 29), nearly half of the 4,000 U.S. consumers surveyed have experienced at least one unexpected expense in the past 90 days, with 56% of emergency costs costing more than $400. In fact, the average consumer emergency cost was about $1,400. That can be a huge drain on the falling money cushions, as described above.
There could at least be some breathing room with the recently announced student loan waiver, and we wonder if taking that monthly burden off the table would give borrowers a chance to “fill up” their savings.
In addition, they can also use platforms like LendingClub’s to take out personal loans that end up being significantly cheaper than credit card debt and automatic savings deposits that yield higher interest rates than some traditional players.
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