Savings are becoming a dividing line in household finances, separating consumers who can absorb an expensive surprise from those pushed into financial difficulty by it.
The PYMNTS Intelligence report “Household Finances Flash a Warning Behind Stable Consumer Confidence” found in August that 19l% of households said their financial lifestyle had deteriorated during the previous year, while 7.1% reported an improvement.
Savings help explain who ended up on either side of that divide.
Among households that had been living paycheck to paycheck without difficulty a year earlier, 66% of those that subsequently fell into financial difficulty had drained their savings during the previous 90 days or never had savings to begin with. Only 37% of those that remained comfortably paycheck to paycheck and 25% of those that moved out of paycheck-to-paycheck living said the same.
Fewer Ways to Handle the Next Expense
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The implications extend to spending because depleted savings leave households with fewer ways to handle the next large expense. Only 26% of households whose finances deteriorated could cover more than three months of expenses from savings, versus 46% whose finances remained stable and 62% whose finances improved. Emergency readiness scores showed a similar gap, with 32 for households whose finances worsened, compared with 57 for those that held steady and 64 for those that improved.
Higher everyday costs were widespread across households regardless of whether their overall finances deteriorated. Among consumers whose bills became harder to pay, 71% of those whose financial lifestyle declined said essential prices had outpaced their income. So did 76% of those whose financial lifestyle remained stable. Income losses and unexpected expenses showed a clearer relationship with households losing financial ground.
Unexpected bills expose the consequences of having little financial cushion. The report found that 28% of households faced an expense of at least $1,200 during the previous 90 days. The rate reached 34% among households living paycheck to paycheck and struggling to pay bills, compared with 27% among paycheck-to-paycheck households not struggling and 23% among households not living paycheck to paycheck.
Payment choices changed with households’ ability to absorb costs. Among struggling paycheck-to-paycheck households, 36% covered their largest unexpected expense with cash, checking or savings, versus 56% of households not living paycheck to paycheck. Meanwhile, 35% carried a credit card balance, 27% borrowed from family or friends and 21% skipped or delayed a bill. Additionally, 15% used a payday loan, cash advance or overdraft, while another 15% used buy now, pay later (BNPL).
Households that improved financially offered another view of what can restore the cushion. Among those whose bills became easier to manage, 44% credited higher household income and 32% said their income had grown faster than essential costs. Lower housing costs played a smaller role, cited by 20% of households whose financial lifestyles improved.
For banks and other financial providers, the findings identify liquidity as a practical pressure point. Savings tools that help households maintain emergency reserves, alongside payment and credit products that let consumers manage unavoidable expenses without immediately exhausting those reserves, address the vulnerabilities identified in the data. With 66% of households that fell into difficulty already out of savings or without any, the spending outlook depends partly on how much capacity consumers have left when the next expense arrives.
At PYMNTS Intelligence, we work with businesses to uncover insights that fuel intelligent, data-driven discussions on changing customer expectations, a more connected economy and the strategic shifts necessary to achieve outcomes. With rigorous research methodologies and unwavering commitment to objective quality, we offer trusted data to grow your business. As our partner, you’ll have access to our diverse team of PhDs, researchers, data analysts, number crunchers, subject matter veterans and editorial experts.
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