Banks Play Important Role in Helping Paycheck-to-Paycheck Consumers Build Savings

Amber Carroll, senior vice president of membership and lifecycle strategy at LendingClub, told PYMNTS that U.S. consumers face a cash drain — but proactive planning can go a long way toward addressing the pressures of everyday financial life.

The data from joint research by PYMNTS Intelligence and LendingClub found that two-thirds of consumers’ available savings are depleted every four years.

As Carroll remarked, “I was not surprised that consumers are having to rely on their savings.” The fact remains that living paycheck to paycheck remains a dominant lifestyle for U.S. consumers — touching 60% of the overall population — and for many individuals, monthly expenses exceed income. In the current inflationary environment, extra cash gleaned by tapping into savings has become a lifeline.

Even so, “I was taken aback by the sheer volume of depleted savings — as well as the frequency,” Carroll said.

Major Expenses Require Major Drawdown of Savings

The drain on savings comes, she noted, as major expenses ranging from auto repair to healthcare demand that consumers use the cash on hand that can satisfy those urgent needs. As many as 78% of all consumers surveyed have reported that there’s been at least one expenditure through the past few months that has necessitated them withdrawing a “significant portion” of their savings.

The impact varies by financial demographics, where paycheck-to-paycheck consumers draw down 76% of their savings every two years. Consumers who are living more comfortably draw down 58% of their savings every six years, “and they may choose to use those savings to pay for discretionary purchases such as travel or a life event such as a wedding or having a baby.”

None of this is to say that high-earning individuals are immune to spending shocks — savings have dropped 7% in real terms (due to inflation) since 2021. At least a subset of one group, namely those earning $200,000 or more, have been able to build up their bank accounts, a hallmark of 35% of these households.

How to Save the Savings

Asked by PYMNTS how consumers can maintain, and even build, their savings accounts in the face of such challenges, Carroll said, “The only thing that’s expected is the unexpected — so planning for the unexpected is the rule of thumb. That’s a good place to start.” She recommended having at least three to six months of living expenses built up into savings accounts. She added that high-yield savings accounts can be a significant way to build up the coffers, as can CDs, which are yielding 5%.

More consumers are optimistic about their ability to save in the months and years ahead, said Carroll, which means they’ve been aware of the benefits of belt-tightening and are taking steps to embrace it.

For financial institutions (FIs), she said, a proactive approach to financial wellness can enable these firms to “serve as a partner and an adviser to guide their clients to their financial goals.” That means helping clients gain some perspective and education about what economic conditions to expect in the near future, and how to manage their money through an environment of prolonged high interest rates.

“Financial institutions should also look to offer ways for members to be rewarded for their banking, whether it’s through cash-back offers, high-yield savings accounts or lower savings … that allow them to better manage their budgets and finances,” she said. As FIs are proactive with their efforts to keep consumers making the best-informed decisions possible, “consumers can be proactive in managing their finances to take advantage of the tools and the products that are available.”