New Study: Younger Consumers Lead Payment Shift From Credit to Debit

• Payment by credit card decreased slightly in some spending categories last quarter as money-in-hand spending increased, with the use of cash up 34% from last year for groceries and 23% for retail suggesting that consumers continue to confront economic uncertainty.
• Meanwhile, digital wallet usage surged among younger consumers, with debit cards now underpinning half of digital wallet transactions across grocery and retail.
• Finally, cash spending at restaurants has increased 12% since 2023, with the use of cash again gaining ground last quarter to approach 23% of spending in this category among older, wealthier consumers.

Consumers continue to use credit cards for pricier purchases. However, younger and low-income consumers use cash and digital wallets to manage financial volatility on tighter budgets. As a result, using debit cards as the underlying digital wallet payment method when buying groceries has doubled in the last year. Shifts in payment method usage reflect a consumer base trying to adapt during sustained economic uncertainty. Recent trends show that age and income play a role as consumers consider debt accumulation on credit cards and the limited uses of debit and cash when trying out new payment tools or turning to trusted financial management methods.

Last transaction trends reveal that economic pressures such as inflation have had little effect on purchasing behaviors of some consumers while pushing others to seek alternatives to traditional credit. Older, high-income consumers still use credit cards for everyday purchases — 44% did so to buy groceries in the last 30 days — even as others show signs of strain. The Federal Reserve Bank of Philadelphia reported record-high delinquency rates in Q4 2023, with 3.5% of credit card balances at least 30 days overdue.¹

The number of cardholders making minimum payments has gone up — as have balances of more than $2,000, now at 25% of active accounts. Both factors show financial distress for certain cardholders. On the other hand, one-third manage to pay balances in full each month. This shows the financial stability gaps between credit users that have pushed some to use different payment methods in specific spending scenarios.

• What’s at Stake
• Payment Preferences Across Demographics
• Digital Wallets Adoption and Debit’s Rise
• Transaction Trends Reveal Generational Divides
• Credit’s Staying Power in Travel and Beyond
• Conclusion
• Methodology

What’s at Stake

Consumer payment preferences are a barometer for broader economic conditions and personal financial health. The shift to more immediate payment methods among younger and lower-income consumers shows a deeper concern about financial stability. For instance, the increased use of cash and debit — up 34% for groceries compared to the previous year — shows a move to more budget-conscious spending among some consumers. Businesses and financial institutions hoping to align their services with consumers’ preferences cannot ignore these trends.

Younger and lower-income groups are more susceptible to economic downturns and often have less credit availability. This prompts many to opt for cash or debit. The data shows that debit cards power 45% of digital wallet transactions. In this way, cash plays its traditional role as the thriftier credit alternative in the new setting of contactless payments.

Payment method choice can affect a consumer’s ability to manage budgets effectively, avoid debt accumulation and maintain financial flexibility. This reality is crucial for service providers to consider when developing and promoting products that help manage financial health and stability.

These are just some of the findings shown in “The Last Transaction: Examining Recent Shifts in Purchasing Behaviors.” This PYMNTS Intelligence study details how consumers completed their last transaction and the latest trends in payment preferences across demographic groups and retail sectors. This data is vital for understanding recent shifts in purchasing behaviors. For this report, PYMNTS Intelligence gathered 2,610 survey responses from U.S. consumers between March 8 and April 1.

Payment Preferences Across Demographics

Businesses can better anticipate changes in purchasing behaviors by tracking how age and income shape payment preferences.

Age and income can mold payment preferences as economic forces such as inflation reshape personal finances. Among younger consumers, those with higher and lower incomes favor their debit cards for grocery shopping. Conversely, among older consumers, those with lower incomes use debit cards for groceries as often. Their wealthier counterparts use credit cards more than any other age group.

This divide extends into retail, where 36% of affluent younger shoppers also opt for debit, in sharp contrast with older adults. Older, high-income consumers use credit cards for 42% of retail purchases. Conversely, older consumers with lower incomes utilize credit cards at a rate of 26%. Such marked differences in payment method preferences show the need for businesses to track consumer behavior trends closely, adapting their payment options to meet their customers’ varying preferences and financial realities.

Digital Wallets Adoption and Debit’s Rise

A growing number of younger consumers use debit cards as the underlying payment method when using digital wallets for everyday purchases.

Nonetheless, the use of cash across grocery, retail and restaurants has recently risen among older, high-income consumers. Historically, lower-income consumers are more likely to use cash to pay for everyday purchases. However, high-income consumers have reported using cash more for these items, with 23% using cash for retail items. Though lower-income, younger consumers more often opt for cash — reaching 20% for grocery and restaurant transactions recently — its usage dipped in the first quarter for retail. This drop in the use of cash may reflect a greater need for credit access, if not a credit card, to buy items pricier than the cash consumers usually keep on hand in retail settings.

With grocery shopping, the share of high-income, older consumers using credit cards is roughly 4.5 times that of their younger, lower-income counterparts. Retail patterns are similar, with the share of high-income older consumers leading all other groups, with more than 50% using credit cards in recent quarters. The trend continues for restaurant spending — albeit with a slight difference among groups. Older, lower-income consumers — often also those on fixed incomes — use cash more often than others in this setting at 28%. Older, high-income consumers still lead, however, with 39% using credit cards at restaurants. The use of cash gained ground again last quarter, approaching 23% of spending among these consumers. Older, wealthier consumers show an enduring confidence in their ability to use credit to manage their daily expenses that other demographics don’t entirely share.

Transaction Trends Reveal Generational Divides

Younger, high-income consumers tend to spend more on credit cards across all sectors than older, higher-income and lower-income consumers.

Younger, high-income consumers spent an average of $81 last quarter when using a credit card for retail purchases — 56% more than the average amount younger, low-income consumers spent. Grocery spending further shows this spending trend, with younger, affluent shoppers averaging a credit card outlay of $132 in this category compared to the $126 spent on average without a credit card.

Younger, high-income consumers spend about the same amount at restaurants, on average, whether they use a credit card or not. This behavior does not overshadow their tendency for higher spending levels on retail items. Rather, these trends reflect a broader narrative that’s more muted in other demographics: Retail spending among younger, affluent individuals in recent quarters shows the leveraging of credit cards as the payment method most suited to one-off spending on higher priced items.

This trend among younger, high-income consumers also holds for average retail spend being greater using other payment methods such as buy now, pay later plans for retail items. This behavior is distinct from the more routine use of credit cards by their older counterparts and the money-in-hand spending patterns of lower-income consumers.

Credit’s Staying Power in Travel and Beyond

Consumers approach paying for travel differently than everyday purchases: Credit card use among all age and income groups is higher, and older, high-income consumers spend the most.

Travel spending trends show the broader spending patterns of older, high-income consumers. They consistently outspend other groups on travel, spending an average of $859. This figure jumps 24% to $1,061 when using a credit card. This demographic’s preference for using credit cards to pay for travel shows trust in credit, in part, as some providers can help cardholders get reimbursed for a canceled trip’s nonrefundable charges or offer travel protections in the case of fraud. It also indicates a pattern of leveraging the rewards and benefits often accompanying travel-related credit card expenditures.

In contrast, younger, high-income consumers’ travel spending more closely mirrors those of the lower-income brackets. On average, they spend a far more modest $413, even when using a credit card. This comparison emphasizes a divergence within the high-income category: Age significantly influences spending habits and credit usage preferences. This suggests varying priorities or financial strategies between younger and older high-income consumers in the travel experiences they seek. Another possibility is differences in available time: Many older consumers are retired.

Conclusion

The data on last transaction trends show younger consumers choose debit cards and digital wallets. This may show the potential beginnings of a trend in avoiding debt from credit card use. Debit is the main payment method for grocery purchases made with digital wallets, doubling in use within the last year. Younger, high-income consumers also show significant spending via debit in retail sectors, using debit for 36% of their purchases.

Younger consumers’ preference for debit over credit could reshape payment ecosystems. For merchants and FIs, adapting to these changes requires offering a variety of payment options that include efficient processing of debit transactions and integrated digital wallet solutions. Staying in front of these trends will be necessary to ensure future competitiveness.

Methodology

“The Last Transaction: Examining Recent Shifts in Purchasing Behaviors,” a PYMNTS Intelligence report, explores how consumers completed their last transaction and the latest trends in payment preferences across demographic groups and retail sectors. This data is vital for understanding recent shifts in purchasing behaviors. For this report, we surveyed 2,610 U.S. consumers between March 8 and April 1. Our sample was balanced to match the U.S. adult population in a set of key demographics. Fifty-one percent of respondents identified as female, 32% were college-educated and 38% had annual incomes of more than $100,000.

^{1. [Goldstein, B; Hoover, C. Q4 2023 Insights Report. Federal Reserve Bank of Philadelphia. 2024. https://www.philadelphiafed.org/surveys-and-data/2023-q4-large-bank. Accessed May 2024.]↩}