Holidays Could be Tough for Consumers Living Paycheck to Paycheck

Thanksgiving is in front of us, though we all know the unofficial kickoff to the holiday spending season really happens before Black Friday.

For many individuals and families – newly vaccinated, traveling and wearied by the pandemic – the wallets may open wider than before. But there are at least some points of friction in the mix.

Anuj Nayar, financial health officer at LendingClub, told PYMNTS that “the holidays may be tough for many Americans this year.”

The data in the most recent Paycheck to Paycheck report, done in collaboration between PYMNTS and LendingClub, shows that the share of U.S. consumers living paycheck to paycheck actually increased in its most recent reading – from 52% earlier in the year to 57% in November.

As Nayar observed, “the financial effects of the pandemic are still so uncertain.” As vaccinations gained ground and economies reopened in the U.S. over the summer, individuals felt more sanguine about their prospects – and, as a result, spent more freely.

The urge to travel, and to shower loved ones with gifts, will likely cause the paycheck to paycheck consumer to feel even more stretched. Retailers, with online channels and installment options, have made it easier than ever to spend money – even if consumers have been going into the stores a bit more often as the pandemic wanes. As Nayar noted, “it’s easy to keep adding things to a virtual shopping cart. We’ve all done it.”

The pinch that paycheck to paycheck consumers feel is all too real. After all, the data show that a third of individuals in this cohort have trouble making ends meet – and the pressures extend even to people who have incomes in the six figures. In an effort to bridge the gap between the income that comes in and the bills that must be paid, an increasing number of paycheck to paycheck consumers are turning to personal loans.

“Personal loans are now ubiquitous, and a mainstream financial tool for many Americans as they look to tackle debt and manage cash flow” and to build the savings and cash cushions that will help them plan for unexpected events, said Nayar. LendingClub has been observing trends where members are taking out loans to pay down consolidated debt. In other cases, they are eschewing credit card debt and financing home renovations and other activities with personal loans.

Tapping Into the Loans – and Reliability

“[With loans], they’ve got a fixed date and a fixed payment, and they are not losing control of their finances – being able to pay everything off with one easy payment is something that more people are getting excited about,” said Nayar.

Even when the holiday season is in the rearview mirror, Nayar believes that many paycheck to paycheck consumers will continue to shop online. That’s due in part to pent-up demand, as these consumers may have held back a bit on buying nonessential goods and services, as their more financially secure peers have gone on to buy Peloton bikes and other discretionary items.

Looking ahead, as the pandemic finally recedes into the past, online lenders like LendingClub will be able to tailor various products and services to the specific financial needs of various cohorts within the 131 million adults who are ensnared in the paycheck to paycheck cycle. After all, said Nayar, the needs of the consumer who makes more than $100,000 are not the same as the needs of someone who makes a third of that. Liquidity needs are different, for one thing. But one overarching theme will prevail: Consumers across the board will be able to take an active – and proactive – approach to their finances and financial wellness.

“We’re going to see that customer segmentation happening even further,” he predicted.