Savings not enough to ease paycheck-to-paycheck pressures

The paycheck-to-paycheck consumer will not – and in fact, cannot – be spared savings.

Inflation is still rampant, hovering between 8% and 9%, eating away at the purchasing power of our collective paychecks.

And since the P2P economy includes most of us – over 60% of consumers at last count, where little is left at the end of the month after meeting basic expenses – the impact is widely and deeply felt. .

It is well known that during the pandemic, consumers in the United States and across all income strata managed to inflate their savings, helped by stimulus checks and the fact that there was so much financial ‘dry powder’ accumulated while businesses were closed and no one could venture outside much.

But savings are shrinking, data from PYMNTS reveals it’s not just a thinking exercise: Nearly half of U.S. consumers have faced at least one unexpected expense in the past 90 days, 56 % of emergency expenses costing more than $400. In fact, the average consumer emergency expense was around $1,400.

Paycheck to paycheck is the norm

Additionally, living paycheck to paycheck is becoming the norm, and as many consumers are now living paycheck to paycheck without bill-paying problems as those who don’t live paycheck to check. of pay. The wealthy aren’t immune to these trends either, as the share 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 lifestyles of American consumers who live paycheck to paycheck, the factors that cause financial hardship, and how financial stressors, such as spending emergency, affect their ability to manage their expenses and set aside their savings.

The series is based on information from a July 8-27 survey of 4,006 US consumers, as well as an analysis of other economic information and recent statistics, as reported in the report “New Reality Check: The Paycheck-To-Paycheck Report”. : The Consumer Savings Edition”, in collaboration between PYMNTS and LendingClub, shows that Americans spend more than they receive.

The survey of 3,583 US consumers to assess the impact of inflation and market volatility on them found that 13% of households spent more than they earned in the past six months .

Dig a little deeper, and the situation is even more prevalent among consumers struggling to pay bills. About 40% of these consumers spent more than they earned in the last 6 months.

There are two ways to “cover” the shortfall: using credit or tapping into savings. We see evidence of the latter as savings decline, a trend that also crystallizes in official government statistics.

The Bureau of Economic Analysis reported in its most recent report that the savings rate as a percentage of personal income was unchanged at 5% in July from June and is down from previous readings of 5.2%. This year.

PYMNTS data shows savings for people who live paycheck to paycheck but don’t have trouble paying their bills have dropped to just over $6,800 from over $8,300 $ at the top. The situation looks a bit worrisome for paycheck-to-paycheck consumers struggling with expenses, and where average savings here are under $3,000, compared to over $4,000 at the top.

We’ve noted in other data that paycheck-to-paycheck consumers are more likely to prioritize easy access to funds when choosing where to keep their savings, keeping 70% of their money on average. in banks, digital wallets or cash. We believe this means they can tap into those funds when needed, rather than allocating them to long-term retirement funds or other accounts intended to hold (and grow) that money at the over time.

And, increasingly, emergency spending is depleting reserves. As reported Monday (Aug. 29), nearly half of the 4,000 U.S. consumers surveyed faced at least one unexpected expense in the past 90 days, with 56% of emergency expenses costing more than $400. In fact, the average consumer emergency expense was around $1,400. This can be a huge drain on dwindling cash cushions, as noted above.

The recently announced cancellation of student debt could provide at least some respite, and we wonder if taking that monthly burden off the table might give borrowers a chance to “re-padded” their savings.

In doing so, they can also take advantage of platforms such as those offered by LendingClub, to take out personal loans that end up being significantly cheaper than credit card debt and automatic savings deposits that earn interest rates. higher interest than some traditional players.


About: Results from PYMNTS’ new study, “The Super App Shift: How Consumers Want To Save, Shop And Spend In The Connected Economy,” a collaboration with PayPal, analyzed responses from 9,904 consumers in Australia, Germany, UK and USA. and showed strong demand for one super multi-functional app rather than using dozens of individual apps.

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