The Last Transaction Report

New Data Finds Income Drives Credit Usage for Essential Goods and Services

June 2024

Income and financial needs motivate consumer credit use choices. PYMNTS Intelligence finds consumers fit into one of three credit use personas. Necessary financers reached for cash or their debit card to complete their last transaction. By contrast, choice financers more likely used a preferred credit card. These consumers often pay off balances to avoid additional costs while accessing card-linked rewards. Travel spending remains high across demographics, with credit card use prevailing. This report delves into consumers’ last transaction trends to highlight the contrasts in consumers’ credit habits. For this report, PYMNTS Intelligence surveyed a census-balanced panel of 2,789 U.S. consumers between April 10 and April 30.

Necessary financers use credit cards sparingly for non-essential spending. When they do, though, they spend significantly more than when they use debit.
While 53% of choice financers earn more than $100,000 a year, only 34% of necessary financers do.
Choice financers are twice as likely as necessary financers to say they would never use a credit product with additional costs.


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    Consumer financing choices reveal diverse budgeting strategies for managing economic uncertainty. PYMNTS Intelligence divided consumers based on how they tend to use credit into necessary financers, middle financers or choice financers. Necessary financers use credit cards sparingly. Even when they splurge, their behavior is more conservative than choice financers. Choice financers are more affluent consumers and are more often older ones without children. Notably, just 15% of choice financers live paycheck to paycheck, suggesting that this cohort can more readily capitalize on credit card rewards with timely payoff of monthly balances. These trends highlight how age, income and financial needs influence credit usage. They also reveal a growing set of consumers on tighter budgets seeking stability through their choice of payment method.

    Breaking down consumer credit usage personas

    For this report, PYMNTS Intelligence wanted to understand consumer credit use trends and used the following definitions.
    Necessary Financers
    When these consumers use credit, more than half the time it is out of necessity.
    Middle Financers
    When these consumers use credit, it is necessary about half of the time and by choice about half the time.
    Choice Financers
    When these consumers use credit, it is necessary less than half the time.

    Economic pressures drive distinct purchasing behaviors across consumer segments. For example, necessary financers use cash and debit to keep essential items from contributing to debt accumulated on a credit card. This choice reflects a cautious approach to financial management. In contrast, choice financers spend more. They also accumulate credit card benefits while avoiding interest costs by paying off monthly balances. These preferences reflect broader adaptations to different economic conditions.



    What’s at Stake

    Consumer payment preferences are a barometer for broader economic conditions and personal financial health. Necessary financers represent the consumer segment most likely to live paycheck to paycheck while also struggling to pay their bills. When necessary financers do choose to use credit, their spending approach is to avoid risk. Meanwhile, middle financers live paycheck to paycheck more comfortably, and most choice financers do not live paycheck to paycheck. These groups do not necessarily seek risk, but they typically have the ability to handle it up to a point. Businesses and financial institutions hoping to align their services with consumer preferences and financial lifestyles cannot ignore these trends.

    41%

    of necessary financers live paycheck to paycheck and have trouble paying their bills.

    These are just some of the findings detailed in “Contrasting the Consumer Credit Habits of Choice and Necessary Financers.” This PYMNTS Intelligence exclusive report explores how consumers completed their last transaction and the latest trends in payment preferences across demographic groups and retail sectors. This data is vital for understanding recent shifts in purchasing behaviors. For this report, PYMNTS Intelligence surveyed 2,789 U.S. consumers between April 10 and April 30.

    Unpacking the Demographics of Necessary and Choice Financers

    Balancing household income and family responsibilities indicates how much consumers rely on credit.

    12%

    of necessary financers do not live paycheck to paycheck.

    PYMNTS Intelligence finds that last transaction trends reflect consumers’ credit experience and ability to manage interest payments. Necessary financers are the most likely to live paycheck to paycheck and use credit to get by, with 86% of these consumers having experienced a cash shortfall in the last 90 days. Meanwhile, middle financers live paycheck to paycheck comfortably and use credit as a cash cushion. Nevertheless, 87% of these consumers experienced a cash shortfall in the last 90 days. Finally, choice financers do not live paycheck to paycheck, and they tend to leverage credit for card-linked rewards. Only 42% of these consumers experienced a cash shortfall in the last 90 days.

    Consumers with children under care are more likely to have experienced a cash shortfall in the past 90 days than those without children. Only 55% of consumers with children never experienced a cash shortfall in that timeframe compared to 65% of consumers without children. This imbalance highlights how much financial strain a household raising a family is likely to experience. Moreover, necessary financers are more likely to have children under care than choice financers. This demographic detail underscores the impact of family-related financial responsibilities in shaping credit usage and overall spending behavior.

    Credit card issuers may be able to expand their customer base by tailoring financial services for choice financers.

    53%

    of choice financers earn more than $100,000 per year.

    Issuers may be able to appeal to choice financers by promoting the perks that differentiate their credit cards from others, since choice financers primarily use credit cards to access their benefits. Businesses and financial institutions must consider the different lifestyles that choice financers otherwise lead. Annual income for this cohort tracks higher than the rest, with 53% earning more than $100,000 a year. This group tends to be older. Baby boomers and seniors are the largest portion of this segment, at 38%; followed by Generation X, at 27%; millennials, at 25%; and Generation Z, at 10%. Understanding these demographics is crucial for tailoring of their services and products to meet the needs of these consumers.

    Among choice financers, 71% do not have children under care. This makes sense since choice financers tend to be older, and thus have fewer financial dependents. We find that 48% of choice financers do not live paycheck to paycheck. Another 37% live paycheck to paycheck but also comfortably pay their bills. Just 15% live paycheck to paycheck and have difficulty paying bills. These characteristics highlight that choice financers are generally better equipped to use credit selectively to maximize benefits and rewards.

    Financers Wariest of Credit Products

    Necessary financers are the most likely to use cash-in-hand methods to buy essential and non-essential items.

    47%

    of choice financers put essential purchases on a credit card compared to 26% of necessary financers.

    Necessary financers try to spend within their means, even for essential items. Their significant use of debit cards and cash underscores their conservative financial approach. In contrast, choice financers are 83% more likely to use a credit card for essential purchases than necessary financers. This suggests their comfort with leveraging credit for various transactions with the expectation of paying off the balance. These varied financial behaviors and strategies highlight the need for businesses and financial institutions to tailor their offerings accordingly.

    Necessary Financers Spend Similar Amounts to Choice Financers on Essential Items

    Necessary financers and choice financers spend similar amounts on groceries.

    $105.80

    Average amount spent on groceries by consumers with kids at home

    Necessary financers spent $88.73 on groceries on average, while choice financers spent $90.57. Similarly, these groups’ spending on restaurants is nearly identical. Necessary financers and choice financers both spent around $40 on their last restaurant purchase. This spending habits suggest that necessary financers are less willing to cut back on essential expenses.

    However, necessary financers are more conservative with non-essential spending, particularly in retail and travel. They spent $81.06 on their last retail purchase — or 16% less than the $96.32 that choice financers spent. This gap suggests necessary financers’ deliberate efforts to limit spending on discretionary items. In fact, this trend is even more pronounced in travel expenses. Necessary financers spent an average of $151.96 on travel services — far less than the $428.33 spent by choice financers. This reveals the extent to which budgetary constraints on necessary financers reinforce the priority of essential over non-essential spending.

    Those experiencing cash shortfalls are particularly cautious with their spending. They are much more likely to reduce expenditures on travel and other non-essentials. Choice financers, who spend almost three times as much on travel as necessary financers, reflect a different financial behavior driven by fewer financial constraints. These disparities reveal the varied financial strategies and credit usage these groups employ to manage their respective economic realities.

    Financing Increases Spending Among Necessary Financers

    Credit cards appear to enable choice financers’ spending even more than that of necessary financers.

    $109.02

    Average amount spent by necessary financers on retail products when using a credit card

    Necessary financers spend $109.02 on retail products on average when using their credit cards compared to $61.27 with debit cards, a 78% increase. However, choice financers, who tend to spend more than necessary financers, show an 84% increase when using their credit cards. Choice financers spend $121.84 on average when they use credit cards.

    The trends are similar for travel services, with even greater spending differentials. On average, necessary financers spend $262.14 with credit cards but just $122.63 with debit cards. Necessary financers tend to spend 115% more when using their credit cards. Choice financers spend $601.45 on average using their credit cards, and $237.87 on their debit cards. When choice financers use their credit cards for travel, they spend 153% more than when they use debit cards.

    Despite these spending differences across categories, necessary financers maintain similar expenditure levels for essential items, regardless of payment method. For example, they spend $92.64 on groceries with credit cards and $92.87 with debit cards. This pattern suggests that credit cards don’t encourage necessary financers to make more expensive essential purchases. Rather credit cards help them maintain their ability to buy essential items. In contrast, choice financers use credit cards to a greater extent for discretionary spending. This further highlights their capacity to leverage credit for non-essential purchases.

    Necessary financers typically make the same number of grocery and retail purchases as other consumer groups. However, they make fewer travel and restaurant purchases. On average, they make 2.7 travel purchases and choice financers make 3.3. This suggests that necessary financers prioritize essential purchases and likely use credit to ensure they can continue covering these necessities.

    Conclusion

    The credit habits of necessary and choice financers differ considerably. Necessary financers rely more on cash and debit cards. They also spend more conservatively across categories but particularly on non-essential items. However, when using credit cards, they tend to spend more on retail and travel than when they use debit cards. Choice financers, who already leverage credit extensively, show even higher relative spending with credit cards compared to debit cards. These patterns highlight how financial necessity and affluence influence consumer behavior.

    Methodology

    Contrasting the Consumer Credit Habits of Choice and Necessary Financers,” a PYMNTS Intelligence exclusive report, explores how consumers completed their last transaction and the latest trends in payment preferences across demographic groups and retail sectors. This data is vital for understanding recent shifts in purchasing behaviors. For this report, we surveyed 2,789 U.S. consumers between April 1 and April 30. Our sample was balanced to match the U.S. adult population in a set of key demographic variables: 51% of respondents identified as female, 35% were college educated and 38% declared incomes of more than $100,000 per year.


    For more, read the May 2024 report, “The Last Transaction: Examining Recent Shifts in Purchasing Behaviors.”

    About

    PYMNTS INTELLIGENCE

    PYMNTS Intelligence is a leading global data and analytics platform that uses proprietary data and methods to provide actionable insights on what’s now and what’s next in payments, commerce and the digital economy. Its team of data scientists include leading economists, econometricians, survey experts, financial analysts and marketing scientists with deep experience in the application of data to the issues that define the future of the digital transformation of the global economy. This multi-lingual team has conducted original data collection and analysis in more than three dozen global markets for some of the world’s leading publicly traded and privately held firms.

    The PYMNTS Intelligence team that produced this report:
    SVP and Head of Analytics: Scott Murray
    Managing Director: Aitor Ortiz
    Senior Analyst: Lauren Chojnacki, PhD
    Senior Writer: Adam Putz, PhD
    Content Editor: Matthew Koslowski


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