LendingClub Says Wealthier Consumers Adjusting to Inflation’s ‘New Reality’

More of us are living paycheck to paycheck — straining to make ends meet — than at any point since the pandemic.

“I was shocked to see the numbers when they came out,” Anuj Nayar, financial health officer at LendingClub, told PYMNTS.

This time around, as joint data from PYMNTS and LendingClub show, more than half of high-income individuals — those earning more than $100,000 annually — live paycheck to paycheck.

“And the reason it’s happening is pretty simple. It’s inflation,” Nayar said. The average U.S. household, he said, has seen its monthly bills go up by $400 from last year. That $400 comes off the top line of one’s paycheck, so to speak, and there’s less left to go around.

No surprise: As a result, consumers are pulling back. And as Nayar put it, there are some areas that are already being affected. Drill down a bit and inflation is impacting the way we live daily life. Nayar observed, for example, during the great snapback in holiday travel, many consumers elected to drive rather than fly.

Dangerous to Dip Into 401(k)

The struggle to meet obligations is showing up, too, in the fact that consumers are starting to tap into 401(k) plans to meet emergency expenses. Nearly 3% of the 5 million people who have 401(k) plans offered by Vanguard Group dipped into those accounts last year to pay for medical bills or stave off foreclosures or evictions, according to reports earlier this month.

“This is one of the worst decisions you can make,” he said, “because you are taking away future income you are going to need for retirement. You’ll look back on that with massive regret as you get to retirement age.” 

Beyond the emergencies, Nayar noted that treating 401(k) plans as an extra source of cash is extending into the realm of meeting everyday expenses. “People are not doing it because they want to splurge. They are doing it because eggs are $6, and everyone’s got to feed their family.”

There are signs, Nayar said, that consumers are recalibrating. Back at the end of the year, for example, pre-holiday research from PYMNTS and LendingClub found that a significant percentage of consumers said they would not spend their money to give gifts. And the latest data show that, although many consumers do not think their incomes will keep pace, 4 out of 10 consumers expect their personal finances to improve in the next year, up seven percentage points from 33% in July 2022.

Explaining the dichotomy, Nayar said that consumers are thinking, “my financial condition is worsening because of inflation. But my personal finances may be better because I’m making the decisions to pull back on things that I thought were maybe nondiscretionary expenses and I’m trying make them discretionary.” Most consumers, he said, are adjusting to the long-term nature of inflation — it’s been a shock, yes, but one that’s seeping into the public consciousness.

That adjustment, he said, has a silver lining. The last year, Nayar said, has shown us all that it doesn’t matter how much one earns. 

“Now everyone, every single person in America is taking a good hard look at their finances and making decisions about where they can pare down expense, what spending they can delay and what spending they can’t delay.” For now, that means pulling back on travel, and on large purchases (such as appliances — Nayar said “white goods” manufacturers are in for a tough year), including cars. 

On the services side of the economy, he said, we’re already seeing pressure. Spending at restaurants and nail salons and other businesses that normally would have seen a spike into the holiday season was relatively flat, or down a bit.

“These decisions are going to continue to feed into the economy,” Nayar told PYMNTS, adding that “finances are becoming central to consumers’ consciousness. … Inflation is the new reality, and we all need to adapt to this reality.”