Households Navigate Higher Costs With Smarter Spending

The consumer in the United States is no longer one market. It’s two. And corporate earnings calls are increasingly where the split shows up first.

On one side are premium brands and travel players reporting that affluent customers are still spending freely.

“The strength in the consumer sector is at the higher end of the curve,” Delta Air Lines CEO Ed Bastian said, per a Wednesday (Feb. 11) Reuters report. “The lower-end consumer is struggling.”

On the other side are mass-market brands and platforms hearing something different. Shoppers are delaying purchases, trading down and hunting for value. PepsiCo cut prices as much as 15% on certain snacks after multiple rounds of hikes, and Rachel Ferdinando, its U.S. foods CEO, told Reuters, “they’ve told us they’re feeling the strain.”

This isn’t just about sentiment. It’s about who has the capacity to spend and who doesn’t. Reuters pointed to Moody’s Analytics data showing that the top 10% of U.S. households now account for nearly half of consumer spending, up from just over one-third roughly 30 years ago.

“The gap … has never been wider,” Moody’s Chief Economist Mark Zandi said, per the report.

The K-Shape Is Broadening From Low-Income to the Middle

New data from Bank of America Institute suggested the divergence is no longer a rich-versus-poor story alone. Its February consumer checkpoint found that a “K-shape” may be emerging between high-income and middle-income households. In January, low- and middle-income households posted weaker year-over-year spending growth (0.3% and 1.0%) than high-income households (2.5%). Wage growth showed a similar pattern at 0.9% for low-income and about 1.6% for middle-income households, versus 3.7% for high-income households.

These figures help explain why overall consumer spending can hold up, even as a growing share of households feels squeezed. When spending is increasingly concentrated at the top, the economy can look resilient in aggregate while becoming fragile underneath.

Housing is where the fragility becomes hardest to ignore. Bank of America’s payments data showed that “for around a quarter of lower- and middle-income households… rent swallows up more than half their yearly income,” up from about 20% in 2019. Even when consumers trade down, there are limits, especially for non-negotiable bills.

Affordability Isn’t Inflation; It’s the Lack of a Buffer

PYMNTS CEO Karen Webster has been mapping this shift for months. Affordability has become a national conversation, not because U.S. consumers forgot how to budget, but because the biggest line items in household budgets have structurally reset higher.

“The biggest components of household budgets—housing, healthcare, insurance, utilities, transportation and debt service—have reset higher… [and] are not expenses consumers can easily comparison-shop, negotiate away or substitute out of,” Webster wrote in January.

That framing is important for financial services leaders because it moves the discussion from price levels to financial stack. Webster’s point is that the macro story can be “technically accurate—low unemployment, moderating inflation, rising wages—and still completely miss the daily reality of millions of consumers.”

What’s changing is not just how expensive life feels. It’s who still has room to maneuver.

PYMNTS Intelligence research highlighted in Webster’s piece found that affordability strain is moving up the income ladder. Among households earning $100,000 to $150,000 each year, the share living paycheck to paycheck by necessity doubled in 12 months from less than 10% in early 2025 to 24% by December.

Webster drew a line between consumers who are paycheck-to-paycheck by choice, or able to make trade-offs, and those who have “no such degrees of freedom.” For the latter group, life becomes “the weekly head-on collision between what they earn and what life costs.”

Paycheck-to-Paycheck Is Becoming an Income Structure Story

PYMNTS Intelligence’s “New Reality Check: The Paycheck-to-Paycheck Report” gave the affordability crisis a measurable backbone. As of October, 66% of U.S. consumers lived paycheck to paycheck, and 22% did so while struggling to pay their bills.

The report found that 42% of all consumers were paycheck to paycheck because they had “no other choice.”

The force multiplier is income volatility. The report found that 60% of consumers earn their primary income outside fixed salaries, including hourly wages, contract work, gig work and commissions. Among those struggling to pay their bills, more than 70% rely on non-salaried income.

This is a critical shift for banks and FinTechs. The risk and opportunity are increasingly driven by timing as much as amount. Volatility turns small disruptions into cascading problems, like fees, late payments, higher-cost credit and foregone purchases.

A Small Wage Slip Can Become a Big Spending Drop

The Wage to Wallet Index sharpened the point. It found that the economy can be fine while workers feel stuck in financial maintenance mode.

November’s Wage to Wallet Index revealed that a monthly 0.81% pay drop for 60 million workers cascaded into a $14 billion annualized pullback in consumer spending. That’s not a recession-level shock. It’s a modest change in wages, translating into a material demand hit because so many households are operating without a buffer.

In February, consumer sentiment tied the same theme to confidence. Labor Economy workers scored about seven points lower on sentiment, and 27.2% said they expect to fall behind financially this year, versus 21.1% for other workers.

The Employment Picture

Many households are looking to increase their earnings and mitigate the impacts of inflation by securing better employment, but they face disappointment in this arena as well.

Job opening rates fell to 3.9% in December, down from 4.5% in December 2024 and 5.2% in December 2023. In other words, there were two openings available for every job seeker in 2023, but there are now just 1.2.

Workers fear that their jobs will eventually be replaced by technology, as only 65.3% believe that their skills will remain valuable in the long term.

All these factors combined have resulted in a gradual increase in households living paycheck to paycheck. This rate has more than doubled among households earning between $100,000 and $150,000 annually.

Note: Consumers who report living paycheck to paycheck are classified under choice or necessity status based on a proprietary weighting scheme that considers their household composition, number of dependents, income sources, debt and spending habits. The purpose of the choice or necessity classification is to provide an indication of factors that are likely to contribute to living paycheck to paycheck due to choices in spending or living versus factors that may be more outside consumers’ control.

C-suites are aware of the K-shaped economic growth pattern and are adjusting their strategies to maximize profit. Airlines, for example, are expanding their business class perks, corporate travel benefits and loyalty programs to appeal to higher-earning customers who are spending more money. On the other end of the spectrum, Pepsi has cut its prices by up to 15% on some snack food items to strengthen their appeal to low-income customers, but only after it faced backlash from several other price hikes.

What This Means for Payments, FinTech and Retail Strategy

For leaders in banking and the digital economy, the widening gap is not just a social issue. It’s a product design issue.

First, the price tipping point is real, and it is large enough to show up in transaction volumes. PYMNTS Intelligence quantified a practical demand-destruction threshold, as nearly 52 million consumers said they would stop buying certain goods or services after a 10% price increase. That has direct implications for card portfolios, merchant acquiring, and any lending model that assumes steady discretionary spend.

Second, affordability stress is pushing more consumers to treat credit as working capital. PYMNTS research finds that for paycheck-to-paycheck consumers by necessity, credit cards are “cash flow bridges covering expenses.” This is where risk management, underwriting and consumer outcomes collide. If mainstream credit tightens, the substitute is rarely to spend less. It’s often higher-cost alternatives.

Third, the split consumer economy demands a split playbook:

For affluent customers, premium experiences and rewards keep working because they map to discretionary capacity and stable cash flow.

For constrained households, the killer feature is not a shinier app. It’s fewer penalties and better timing, including faster access to wages, visibility into bills, and tools that smooth volatility before it becomes delinquency.

As Webster summarized it, “resilience isn’t thriving. And survival isn’t stability.”

That’s the lens C-suites should bring to 2026 planning. The question is no longer whether the consumer is strong or weak. The question is which consumer you serve, and whether your products assume optionality that a growing share of households no longer has.