Stressed Consumers Scaling Back Retirement Planning and Funding

People living paycheck-to-paycheck are having a hard time setting financial goals, much less achieving them.

According to the latest study in this long-running series, December’s “New Reality Check: The Paycheck-to-Paycheck Report: Financial Goals Edition,” households living between checks have risen three percentage points since October, and that present is putting their future finances in question.

“In this report, we spent a little bit of time focusing on consumers’ perceptions of financial goals as they’re getting to the end of the year. The shocking statistic is a third of consumers are not saving any money at all, for either short- or long-term goals,” LendingClub Financial Health Officer Anuj Nayar told PYMNTS.

He said it’s a downbeat finding that’s bound to color consumer perceptions into 2023 and after.

As the report states, “Fifty-seven percent of paycheck-to-paycheck consumers think high inflation has diminished their capacity to reach their long-term financial goals. Compared to a year ago, 32% of all consumers reported a decrease in the portion of their paycheck they can save, while 42% of consumers living paycheck to paycheck with issues paying bills say the same.”

Nayar enumerated the drivers behind the trend, noting that “essential costs have shot up 40% to 60% this year,” and with holiday spending and higher energy costs gripping parts of the U.S. amid winter storms, it’s pushing back financial planning.

“So, 36% of all the U.S. consumers have not identified short-term financial goals, and 38% haven’t defined long-term goals,” he said, adding, “that shoots up for those living paycheck to paycheck with issues paying their bills.”

Conversely, among those not living paycheck to paycheck, he noted that “three-quarters of them obviously have all their financial goals in place. As the environment hopefully eases up a little bit as we get into next year, we think it’s going to take some time until that ease is felt by consumers feeling the strain.”

Survival Strategies

While inflation and debt can make it feel a bit hopeless, Nayar suggested several ways that consumers can improve their situation, even under paycheck-to-paycheck realities.

“The only thing you can do is have a strategy,” he said. “There are some very simple things you can do to at least start to think about how to enter the new year in a better place. The first one is your credit card.”

As credit cards issue end-of-year review statements, Nayar advises: “Go through them, see where you spent your money in 2022. Take the time, especially during the holidays when you may have a little bit more time to think about this stuff.”

“Do the end-of-year review split out by the different aspects of where you’re spending your money and then just take a little time to go through it. Do you have a planned large expense that’s going to be hitting sometime over the next six to 12 months? How much can you put aside for that?”

There’s also the unplanned emergency expenses that occur in every home and life, and while the Federal Reserve has long held to a $400 price tag on such unexpected expenditures, a previous edition of New Reality Check: The Paycheck-To-Paycheck Report found the actual number to hover around $1,400 for most households.

Read more: How Did $1,400 Become the ‘New’ Average Emergency Expense?

Nayar said consolidating credit card debt, ideally with an interest rate improvement, is another good strategy.

“That’s where LendingClub comes in, is consolidating these high-interest revolving credit cards to a fixed-interest personal loan,” he said. “One of the products we offer is called Balance Transfer where, as opposed to putting the money in your account, we pay your creditors off directly. We’ll send the check directly to Chase or Citi or whoever to pay off your credit cards.”

Planning for the Unpredictable

There’s no reliable prediction for 2023 other than that the first half will be decidedly difficult, and the more people can do to prepare, the better.

“As we look ahead to 2023, it’s fair to say the uncertainty that is kind of following today’s economy is going to reach into next year,” he said. “Consumers are feeling anxious, rightfully so, about their financial future.”

For example, Nayar pointed to suspended student loan payments that could kick back in 2023, compounding an already rough picture for the roughly 63% of U.S. households living paycheck-to-paycheck. As it is, “just 29% of paycheck-to-paycheck consumers without issues paying bills and 13% of those with issues paying bills say they are stable savers” per the latest report.

Here again, he recommends scrutinizing credit card statements and looking for more affordable options for rolling costly debt into lower-interest offerings wherever possible.

“There’s a whole host of high-yield savings accounts, as the Fed interest rate has massively increased, that are offering market leading rates. LendingClub’s latest rate is 3.6%. As you start putting that stuff together, you’re going to be in a much better space,” he said.

Getting a jump on tax filing to get any refund due is another action paycheck-to-paycheck households can take towards improving their new year.

“There’s no reason why you should leave all that money that you paid into 2022 sitting with the government until April 15^th,” he said. “Get it worked out, file it early, and see if you can get your money back early.”