Cold inflationary winds are ruining warm summer fun for millions of consumers as new data reveals that 13% of Americans have spent more than they earned since the start of 2022.
Despite shocks that keep coming in the form of interest rate hikes and spikes in the Consumer Price Index (CPI), this is a new low. Americans are dipping into their diminishing savings accounts — and increasingly turning to loans to bridge the gap.
In the August “New Reality Check: The Paycheck-To-Paycheck Report: The Consumer Savings Edition,” a PYMNTS and LendingClub collaboration, we found that in addition to 13% of consumers not making ends meet, the share of those earning more than $100,000 and living paycheck to paycheck increased 9 percentage points from 36% in May 2022.
Read more: New Reality Check: The Paycheck-To-Paycheck Report: The Consumer Savings Edition
“A nine-percentage point jump is pretty significant in a month,” LendingClub Financial Health Officer Anuj Nayar said in an interview with PYMNTS.
“Over the last few months, we’ve seen inflation rate skyrocket,” he continued. “The Fed increased 75 basis points on July 27, and I think that was the fourth interest rate increase we’ve seen so far this year. It’s as a response to the inflation rates that we’re seeing going through the roof, 9.1% at the last report.
“It’s pushing everybody into this paycheck-to-paycheck environment.”
With the August report finding the highest earners starting to recoil due to inflation fears, the situation is becoming dire for those further down the economic ladder.
Saying the hit to high- and middle-income consumers is especially jarring, Nayar told PYMNTS that the number of people in the 20% of earners in the U.S. — especially those making $100,000 to $150,000 — jumped 11% over the course of a month.
“It’s pushing everybody but those people that were maybe not in the paycheck-to-paycheck environment, but as the price of everything is increasing, and frankly the cost of their stock holdings have gone down,” he said, “they’re self-identifying as paycheck-to-paycheck.”
Definitions are important when discussing this issue, Nayar clarified, noting that when living “paycheck to paycheck,” a consumer has nothing left at the end of a given pay period and that “any kind of unforeseen expense will send them over the edge.”
He added there are subsets of struggling consumers who can’t meet all obligations, saying these are an “important distinction” when analyzing paycheck-to-paycheck trends.
The Breakdowns
With the August study finding that average savings among all consumers dropped 8% from $11,724 in May 2022 to $10,757 in June, consumers are still spending, even in nonessential areas like travel.
During the pandemic, spending leaned into home goods and related categories, but Nayar told PYMNTS, “That shift is moving to services. People are spending more on travel, more on restaurants, more on holidays.
“We’re seeing that a lot of people are just desperate to go back to some level of normality and they’re dipping into savings that they built up over COVID to do that stuff. Depending on the income stream, you’re seeing that more and more.”
Savings are the cushion on which millions of Americans relied throughout lockdowns and layoffs starting in 2020, and they’re being chipped away at by nonessential purchases and a decrease in buying power — leaving consumers to use costly credit cards, or more manageable personal loans.
See also: Inflation Bites as 13% of US Consumers Spent More Than They Earned in Last Six Months
“From an age point of view, the Gen Zs, and at the top level, baby boomers and seniors, are seeing their savings rates drop pretty dramatically,” he said. “I think the reasons might be different. It’s incredibly hard to save across the board for everybody right now, but Gen Zs who are just starting in the workforce, they’ve got an entry-level salary” and can’t afford a Gen Z lifestyle.
For seniors and aging baby boomers, “It’s about being on the fixed income,” he said. “If you reach retirement age … you know exactly how much money you’ve got. When your expenses are shooting up every day — cost of gas is up 50%, cost of eggs are up 30% — these are basic essentials, you’ve got to fixed budget, those things are costing more, and the only way to make those ends meet is by dipping into savings.”
There’s no easy fix, as Nayar noted that the 2022 inflation-not-recession construct is a new economic animal.
“Every recession is different, but no one’s seen one like this,” he said. “We have record low unemployment, record high inflation, and still consumer spending right now is not slowing down. These are all, I think, pretty much unprecedented.”
Low Delinquencies, At Least for Now
Less concerned with official declarations of recession (or not), Nayar said the current economic downturn is as much on a gut-level as it is about one’s bank balance.
“To me, it’s not about what’s happening in the economy, it’s about how do you feel,” he said. “Certain sectors are feeling this a lot more than other sectors. I live in San Francisco. There’s been a whole bunch of technology company layoffs. That’s when you feel a recession’s really hitting, when suddenly you don’t have a paycheck coming in.”
Often in these times, people are waiting the other shoe to drop, and in Nayar’s view, that’s the end of COVID-era waivers and wondering what will happen to some in coming months.
He said, “I haven’t heard what’s happening with the student loan moratorium. That moratorium started in March of 2020. It’s scheduled to end in August. The average cost to somebody that’s carrying that debt is like $300 or $400 a month. Is that what’s going to send people into the mindset of, ‘I’m in a recession if suddenly I have to pay $400 a month’” on student loans?
Calling 2022 “a tale of two halves,” he said LendingClub had “a bumper first half of the year, incredible revenue and earnings,” and yet the lender is pulling back on expenditures itself as it awaits uplifting indicators that the recovery promised in 2022 is getting underway.
On a positive note, Nayar said LendingClub is “following the data on what’s happening with delinquencies, which so far have been fantastic.”
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