Unpacking how U.S. consumers at all income levels are making ends meet reveals that paycheck-to-paycheck living is becoming — or already is — accepted as a dominant lifestyle today, and it’s likely to be with us for some time to come, with or without a recession adding more weight.
Speaking with LendingClub Financial Health Officer Anuj Nayar about the latest report in this series, “New Reality Check: The Paycheck-To-Paycheck Report: The Inflation Edition,” a PYMNTS and LendingClub collaboration, key findings see patches of sunlight in an overcast outlook.
Though The Inflation Edition found that 60% of consumers across the board have had to adjust spending and managing personal finance as a result of spiking prices, Nayar noted that for the first time in nearly two years of this series, fewer people are struggling to meet expenses.
“This is a major changing point,” he said. “Since we started this report, there have been more people not living paycheck to paycheck than living paycheck to paycheck but making ends meet. This was the first month of that switch — 41% are now living paycheck to paycheck but not struggling to pay their bills, and 40% are not living paycheck to paycheck. That’s a major moment.”
In fact, the 41% of consumers who were living paycheck to paycheck without difficulty paying their monthly bills is a 10 percentage-point increase from September 2021, exceeding the 40% of consumers who don’t live paycheck to paycheck, according to the report.
Despite that bright spot, the “new reality” inferred by the series title is that “what we’re seeing now is that shift has become the norm,” he said.
“The norm of people being able to just pay their core bills, but nothing left over for frills, nothing left over for major pushes to their retirement beyond what they’ve already got allocated is kind of a scary approach as we look at the financial health of Americans going forward, not just today, but for the next 10 or 15 years.”
Get the study: New Reality Check: The Paycheck-To-Paycheck Report: The Inflation Edition
Keeping the Lights On
As the pandemic was quickly replaced by 40-year record-high inflation, much of the saving and paying down credit card debt that happened in 2020 and 2021 is being undone as consumers are eating into those savings and maxing out credit cards, then making minimum monthly payments on them.
Nayar breaks the current picture into payment tools and credit tools, with each taking a slightly different path to the same destination. For example, he said, consumers are having to convert stored value like credit card points into spendable gifts cards to meet expenses.
“Over years, you’ve built up your credit card reward points, but you’ve kind of ignored those,” he said. “People are using those now, not to pay for holidays and other one-time expenses but to help with everyday finances, either directly or by transferring them into gift cards.
“On the credit side, people are leaning heavier on their credit cards than they have before, and not managing to pay off their bills every month. So now we’re back to all-time highs of credit card debt, increasing numbers of revolvers, people that don’t pay it off every month, that are now getting stuck in that hamster wheel of credit card debt.”
Likewise, COVID-era savings are vanishing into higher grocery bills, higher utilities charges and the other recurring costs of running a household.
See also: LendingClub CEO Says Paycheck-to-Paycheck Living Is ‘New Climate Crisis’
Credit Cards and Cutting Back
Credit card use as a strategy for making ends meet is a known danger area, and Nayar said the typical consumer isn’t thinking about interest rate increases and how they’ll impede their ability to pay down credit balances. They also may not notice its impact on those card statements.
Saying credit card interest rates aren’t hidden, per se, “It is definitely not front and center. We’re all busy trying to make ends meet and you know that … the cost to just get to and from work or school has gone up by $150 a month, your grocery bill’s gone up by $80 a month, your income hasn’t changed. Therefore, you’re just like, ‘What do I have left to pay for these other bills?’ That’s the number you pay on your credit cards.”
Put another way, it only appears that credit makes ends meet. The situation is leading consumers to make even more questionable decisions, like foregoing healthcare.
“It really comes down to short-term versus long-term,” he said. “I would consider health insurance to be an essential expense, but almost half of consumers, 48% of consumers living paycheck to paycheck with issues paying bills, didn’t pay for health insurance.”
Less potentially dire are lifestyle decisions that some, though not all, can undertake. A self-professed urban dweller, Nayar said he and his wife had two cars and got rid of one because living in a big city makes that possible. His rural-dwelling mother-in-law, on the other hand, can’t make do without a car, or the costly gas, insurance and maintenance required.
“The crux of the thing is that ‘essential’ means different things to different people,” he said.
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