New research about record inflation impacting consumers living paycheck to paycheck
The customers in your auto finance company portfolio or arriving at your dealership might not be feeling so great about their current family budget situation based on the latest research recently shared by LendingClub Corp. and the BMO Real Financial Progress Index.
Findings from the 14th edition of LendingClub’s Reality Check: Paycheck-To-Paycheck research series, conducted in partnership with PYMNTS.com, showed more than half of Americans earning between $100,000 to $150,000 live paycheck to paycheck.
Furthermore, the new installment of the series indicated 60% of participants said inflation has altered how they manage and spend their money, especially since inflation reached a 40-year high in June.
The research placed paycheck-to-paycheck consumers into two categories: those who can pay their monthly bills without difficulty and those who struggle to do so.
In August, LendingClub and PYMNTS.com discovered 41% of consumers were living paycheck to paycheck without difficulty paying their monthly bills, a 10 percentage-point increase from September 2021 and exceeds the 40% of consumers who do not live paycheck to paycheck.
“More consumers living paycheck to paycheck indicates that many are continuing to lose their financial stability,” LendingClub financial health officer Anuj Nayar said in a news release. “Yet, the share of consumers living paycheck to paycheck with issues paying their bills has dropped 7 percentage points in the past year.
“Many have moved to what now may constitute a stable lifestyle: living paycheck to paycheck but still managing to pay your monthly bills. There is just nothing left over at the end,” Nayar continued.
In August, LendingClub and PYMNTS.com said three in five U.S. consumers were living paycheck to paycheck, and close to one-fifth struggled to pay their bills.
Researchers noted that the share of consumers living paycheck to paycheck has trended upward over time, increasing from 57% in September 2021, and the rise has been strongest across high-income consumers.
In August, LendingClub and PYMNTS.com found that 45% of those earning more than $100,000 per year were living paycheck to paycheck, a 7 percentage-point increase from 38% in September 2021.
And researchers noticed 62% of consumers annually earning between $50,000 and $100,000 were living paycheck to paycheck, up from 57% in September 2021.
Also of note from LendingClub and PYMNTS.com, consumers in the lowest range of the upper income brackets are particularly likely to be sliding toward paycheck-to-paycheck life.
Researchers said 54% of consumers who annually make between $100,000 and $150,000 — more than double the median personal income in the U.S. — are living paycheck to paycheck, an increase of 7 percentage points from July.
PYMNTS’ research finds that 60% of all consumers who noticed price increases report having to make changes to how they manage and spend money; with half of these consumers, and 51% of those under financial stress, saying they have made very or extremely significant changes.
Consequently, most consumers report changes in their shopping preferences and less spending capacity. The reduction in purchasing power is changing consumers’ purchasing behaviors in everything from merchant choice to transportation habits.
One-quarter of consumers who changed how they manage and spend money due to inflation report that this has forced them to be more money-smart, while 20% say they are shopping at different merchants due to money constraints. The data also shows that most consumers cite limiting spending capacity and changing shopping preferences as the top ways inflation has caused them to change how they manage and spend their money.
BMO Real Financial Progress Index
This quarter’s BMO Real Financial Progress Index results found that Americans are growing increasingly concerned about rising consumer prices, inflation, and a potential recession.
According to the bank’s project, a total of 84% of Americans said they are concerned about a recession occurring by the end of the year. Over the past three months, nearly three quarters (74%) of Americans said their concerns about inflation have increased.
More than 70% feel their financial momentum is threatened by higher grocery bills (78%) and the rising cost of gas (76%).
In order to prepare for a potential recession, 76% of Americans said they are making lifestyle changes such as delaying large purchases on a house or vehicle, paying down debt and cutting back on holiday spending.
“It’s clear that Americans are feeling the weight of inflation with concerns of a recession in mind, and now, many are going so far as to put off their homebuying journey or buying a new car,” said Paul Dilda, head of U.S. consumer strategy for BMO Financial Group. “BMO’s findings only underscore what we know is crucial right now — that everyone should look at their finances and develop a solid plan after talking with their banker or financial advisor. With the right advice and tools, people can continue to reach their financial goals and make financial progress through inflationary periods.”
These findings are from the latest BMO Real Financial Progress Index, a quarterly survey conducted by BMO and Ipsos that measures Americans’ sentiment around financial confidence. The survey was conducted from July 27 to Aug. 29.