60% of Americans live by paying paycheck to paycheck as the peak shopping season approaches

Just as the holiday shopping season enters its peak, families are finding less slack in their budgets than before.

As of October, 60% of Americans were living paycheck to paycheck, according to a recent LendingClub report. A year ago, the number of adults who felt stretched thin was closer to 56%.

“More consumers who have historically managed their budgets comfortably are feeling financial pressures, which will affect their spending behavior as we approach the holiday shopping season,” said Anuj Nayar, LendingClub’s Chief Financial Health Officer.

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Not only are daily expenses rising, but inflation has also caused real wages to fall.

Real average hourly earnings fell 3% from a year earlier, according to the latest reading from the US Bureau of Labor Statistics.

A separate report from Payroll Finance found that two-thirds of working adults said they were worse off financially than they were a year ago.

Already, credit card balances are on the rise, up 15% in the most recent quarter, the biggest annual jump in more than 20 years.

People are trying to economize and make the most of what they have.

Cecilia Seiden

TransUnion Vice President of Retail Business

Nearly half of shoppers said they would buy fewer items because of higher prices, and more than a third said they would rely on coupons or other money-saving strategies, according to a separate survey by RetailMeNot.

More consumers are also planning to finance their purchases this year with credit cards and buy now, pay later loans.

And 25% of shoppers said they would choose cheaper versions or more practical gifts, like gas cards, according to another holiday survey by TransUnion.

“People are trying to economize and make the most of what they have,” he said. Cecilia Seiden, TransUnion Vice President of Retail.

Holiday debt ‘easy to get into, hard to get out of’

Shoppers at the King of Prussia Mall in King of Prussia, Pennsylvania, on Saturday, December 4, 2021.

Hannah Pierre | bloomberg | Getty Images

Holiday spending could come at a high cost if it means tackling additional credit card debt just as the Federal Reserve raises interest rates to slow inflation, according to Ted Rossman, senior industry analyst at CreditCards.com.

“It’s easy to get into credit card debt and hard to get out of,” he said. “High inflation and high interest rates make liberalization more difficult.”

Credit card rates are now at 19%, on average — an all-time high — and those rates will continue to rise because the central bank has signaled more increases are coming until inflation shows clear signs of abating.

“This increases the likelihood that credit card companies will increase interest rates, and it makes the money you owe more expensive over time,” added Natalia Brown, chief client operations officer at National Debt Relief.

She said rising inflation and interest rates mean consumers need to be especially careful.

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