LendingClub Corporation (NYSE: LC), the parent company of LendingClub Bank, has released the latest findings from its New Reality Check: Paycheck-To-Paycheck research series. The 25th edition, titled Nonessential Spending Deep Dive, examines the impact of nonessential spending on consumers’ ability to manage expenses and save.
The research is based on a survey of 3,443 U.S. consumers conducted in July 2023, as well as an analysis of other economic data. The findings reveal that 61% of U.S. consumers are living paycheck to paycheck, which is unchanged from June 2023 but 2 percentage points higher than July 2022.
Among these individuals, 21% are struggling to meet bill payments, which represents an increase of 2 percentage points from a year ago. More consumers across all income brackets reported living paycheck to paycheck in July 2023 compared to the previous year. This data highlights the ongoing financial challenges and inflationary pressures faced by a significant portion of the U.S. population.
The research also reveals that nonessential spending is a top reason why many people are stuck in the paycheck-to-paycheck cycle. Approximately 16 million U.S. consumers, or slightly over 10% of the paycheck-to-paycheck population, cite nonessential spending as their primary reason for their financial situation. An additional 21% of paycheck-to-paycheck consumers mention nonessential spending as a contributing factor.
It’s not just those living paycheck to paycheck who engage in nonessential spending. The research shows that 74% of consumers admit to including “nice-to-have” items in their grocery carts, and 70% do the same for their retail purchases.
Among different age groups, nonessential spending seems to impact younger consumers the most. Gen Z consumers living paycheck to paycheck cite nonessential spending as a significant factor in their financial distress, with 15% considering it the top reason. In contrast, only 12% of baby boomers and seniors in similar financial situations attribute their struggles to nonessential spending. The study also finds that male consumers are slightly more likely than female consumers to blame nonessential spending for their financial strain.
Alia Dudum, LendingClub’s Money Expert, advises consumers, especially younger generations, to regularly assess their spending habits and be mindful of the compounding effect that nonessential spending can have on their financial stability. She warns that frequent indulgence in nonessential spending can lead to bigger and lasting debts.
The research also delves into the categories where consumers splurge on nonessential items. Those who are not living paycheck to paycheck tend to engage in more nonessential spending, particularly in grocery and retail shopping. For grocery shoppers, desserts, candy, and sodas are among the most common indulgences, with premium goods and snacks following suit. Clothing, health, and beauty products are the top non-grocery splurges. Younger consumers are more likely than older generations to spend on discretionary services like leisure activities, travel, and personal services.
Aside from nonessential spending, the research also looks at areas where consumers overspent in the last 30 days. Financially stable consumers were more likely to indulge in higher-cost categories such as dining out at table-service restaurants and airfare. Paycheck-to-paycheck consumers with bill payment issues allow themselves indulgent spending on streaming services and quick-service restaurants.
The study concludes that consumers who engage in indulgent spending are more likely to make payments related to credit cards, personal loans, and buy now, pay later plans. Credit product usage is significantly higher for those who indulge in nonessential spending, indicating that credit is more commonly used for nonessential categories rather than essentials like groceries or household supplies.
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