LendingClub Corporation (NYSE: LC), the parent company of LendingClub Bank, and PYMNTS Intelligence have partnered to shed light on the financial challenges faced by US consumers.
Their 26th edition of the Reality Check: Paycheck-To-Paycheck research series was recently released. This study focused on the impact of seasonal spending on consumers’ capacity to manage their finances and save. Drawing from a survey of 4,218 U.S. consumers conducted between Aug. 2 and Aug. 15, this research also incorporates insights from other economic data.
The Paycheck-to-Paycheck Landscape
As of August 2023, a staggering 60% of consumers found themselves living from one paycheck to the next. This trend hasn’t seen any change since the previous year. Alarmingly, this financial pattern isn’t just restricted to those earning below $50,000 annually but spans across all income brackets. Even individuals earning over $100,000 annually, 45% of them report living this way. Within the bracket of $50,000 to $100,000, 62% of consumers admitted to living paycheck to paycheck.
LendingClub’s Money Expert, Alia Dudum remarked, “The data underscores the pervasive nature of financial challenges affecting a majority of consumers. With ongoing inflation, U.S. consumers remain resilient by adjusting their spending to service their financial obligations. However, the problem is that there is more month at the end of the money, and seasonality is affecting consumers’ financial distress.”
Consumers’ Perception of Seasonal Impacts on Finances
For many, their financial stability varies with the seasons. Almost half of the consumers feel their financial well-being fluctuates throughout the year. Millennials, 60% of them, especially feel the pinch at certain times annually. Families of four or more, with 57% reporting, feel a similar seasonal strain.
The reasons for these seasonal financial hiccups change as the year progresses. For instance, 18% pointed towards utility bills as a major stress factor in Q1, whereas 40% indicated tax payments in Q2. School expenses and festive events and celebrations were the top concerns for Q3 and Q4 respectively.
Interestingly, these seasonal fluctuations can even cause those not traditionally living paycheck to paycheck to feel as if they do.
Holiday Spending Takes Its Toll
December stands out as the toughest month for 36% of consumers. Following closely are November and January. With 55% pointing to events and celebrations as the primary reason for their financial duress in these months, it underscores the stress of the festive season. Large families and bridge millennials especially feel this pressure.
Nonessential spending, particularly during the festive season, is another significant factor. While holiday expenses are anticipated, they are essentially nonessential. Those who live paycheck to paycheck due to nonessential spending find their finances changing notably through the year.
“Whether a consumer is living paycheck to paycheck or not, seasonal fluctuations can seriously impact financial livelihood and cause individuals to feel the strain,” commented Dudum. “With the holiday season rapidly approaching, it’s crucial for consumers, especially those prone to nonessential spending, to consider establishing a holiday budget now.”
Consumers Turn to Credit to Cope
Cutting back on nonessential expenses is a common strategy to tackle seasonal financial hurdles. However, the most prominent coping mechanism is credit, with 36% leaning on it during financial strain. Skipping payments, spending less on necessities, and using savings are other strategies employed. Remarkably, half of the credit users feel their debt doesn’t negatively affect their financial health. Yet, unexpected expenses can throw many off. For instance, while 78% felt confident in handling an unexpected payment of $500, 1 in 4 said it would bring significant financial stress.
Dudum concluded, “Many consumers could benefit from identifying their peak spending months and proactively budgeting for these major quarterly expenditures.”
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