American Consumers have continued to be resilient in the face of all the economic uncertainty they have faced in the past few years, many were able to save money and pay down debt in 2020 and 2021 - even in the face of the darkest days of the pandemic. According to the consumer price index, at least compared with the soaring inflation of a year ago, prices have begun to ease from 3%.
However, data from a LendingClub report conducted in October- a month before the holiday season kicks into high gear, shows 61% of adults still say they are living paycheck to paycheck. Low-income workers have been the hardest hit by price spikes, and fewer top earners have been struggling to make ends meet. Of those earning $100,000 or more, only 45% (4 out of 10) reported living paycheck to paycheck considering themselves worst off relative to 2022.
The Paycheck-to-Paycheck Landscape
Based on a separate TD Bank survey, 96% of shoppers said they expect to overspend this season, half of them plan to take on more debt to pay for holiday expenses where only 23% have a plan to pay it off within one to two months. It can also be recalled that 74% of Americans say they are stressed about finances back on a survey in August which is caused by Inflation, rising interest rates and a lack of savings. That same survey found 61% of Americans are living paycheck to paycheck, up from 58% in March.
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'Hyper-Consumption' Explained
Despite inflation cooling, consumers are still having a hard time making ends meet due to excessive price hikes and yet from 'Hyper-consumption' that is rampant over the holidays.
"While consumers have found a way to manage through inflation, it's concerning that many plan to tap into savings, and even exceed their budgets, to finance their holiday purchases, which may leave them vulnerable to an unexpected emergency," said Alia Dudum, LendingClub's money expert. The LendingClub report was conducted in October, just one month before the holiday season kicks in, as noted by CNBC.
It was also reported that the holiday spending during the Thanksgiving week may hit a record as consumers try to maximize the weekend's deals, according to a 2023 Deloitte Black Friday-Cyber Monday survey. Spending is expected to jump 13% from last year, with shoppers shelling out $567 on average. Hence, even when the economy continues its uncertain trend, American consumers are still looking to splurge on the holidays this year and make the season memorable just like the pre-pandemic season. Many consumers have already tapped their cash reserves over the past few months as they plan to dip into their savings even more to cover holiday spending.
As per Jacqueline Howard, Head of Money Wellness at Ally Bank, families typically overspend on gifts during the holidays due to a hyper-consumption mentality. She also added that this "hyper-consumption" trend is due to a lack of mindfulness about spending. Howard encourages a value-based budget approach for holiday spending that prioritizes their well-being.
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