Debit Dominates as Low-Income Consumers Guard Cash Flow

For merchants selling to low-wage consumers, the competition isn’t simply over who offers the lowest price. It’s over whether the purchase can clear a tight household budget in the first place.

The PYMNTS Intelligence report “The Labor Economy Follows a Different Consumer Playbook,” found in July that 37% of Labor Economy consumers, defined as workers earning no more than $25 an hour and generally less than $50,000 annually, are needs-focused shoppers who stick to budgets and minimize nonessential purchases compared with 26% of consumers outside the Labor Economy. Only 20% of Labor Economy consumers said they prioritize quality and convenience, compared with 30% of higher earners.

Deal hunting itself doesn’t separate the two groups. The report, part of the Wage to Wallet Index done in collaboration with WorkWhile, revealed that 31% of Labor Economy consumers are active deal seekers, virtually the same as the 32% share among higher earners. The difference emerges in what shoppers are willing and able to pay for once they find a product.

Rewards programs, bulk discounts and other offers can deliver savings, but they can also require consumers to spend more up front, make repeat purchases or wait to realize the benefit. Labor Economy workers make less use of rewards apps, loyalty programs and bulk buying, suggesting that savings available today can carry more weight for households managing near-term cash flow.

For retailers, that can put greater emphasis on entry price points, private-label products and promotions that reduce the transaction immediately. These approaches are ways merchants and digital platforms can make value visible earlier in the purchase process, while loyalty can remain useful when thresholds are low and redemption is simple.

Labor Economy households reported spending an average of $452 per month on nonessential purchases in July, 43% below the $787 reported by higher earners. Travel showed the largest participation gap, indicating that larger or less flexible purchases are particularly vulnerable when budgets tighten.

More importantly for merchants, the pullback extends beyond smaller baskets.

Merchants Compete for a Smaller Discretionary Wallet

The report showed that 46% of Labor Economy households said they had reduced nonessential spending over the previous 12 months, compared with 36% of higher-earning households. Meanwhile, 40% had eliminated at least one “want” category altogether, and 32% said they felt less able to afford nonessential purchases than they had a year earlier.

A merchant isn’t always trying to persuade a shopper to choose its version of a discretionary purchase. In some cases, it’s trying to keep the entire purchase from disappearing from the household budget.

The payment mix reinforces the same near-term focus. Debit was the most-used payment method for 43% of Labor Economy consumers, while credit led for just 16%. The report found that 20% of Labor Economy consumers hadn’t used a credit card during the previous year.

That limits the reach of strategies built around card rewards or spending incentives tied to credit. Among Labor Economy consumers who used installments, just 15% cited card rewards as a reason, compared with 26% of higher earners. By contrast, 45% said they used installments because they couldn’t cover the full purchase price at once.

For merchants, that makes immediate, visible value a more consequential part of competing for a discretionary dollar that a growing share of these households is deciding not to spend at all.

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.