20% of Financially Unstable Consumers Cite Discretionary Spending as Reason

Nonessential spending is far from the No. 1 reason that consumers struggle with financial instability, but for a significant share of those living paycheck to paycheck, these nice-to-have purchases are at least partially to blame.

The PYMNTS Intelligence study “New Reality Check: The Paycheck-to-Paycheck Report: Pessimism About Pay Rises Offsets the Effect of Falling Inflation” drew from a survey of more than 4,300 U.S. consumers to understand their economic outlooks and the factors contributing to their financial lifestyles, among other matters.

The results revealed that, among the 62% of consumers who live paycheck to paycheck, 1 in 5 says that their nonessential spending is at least one important factor causing this financial instability. Plus, 10% of paycheck-to-paycheck consumers cite this as the single most important factor.

Many consumers have been pulling back on discretionary spending in response to ongoing economic challenges, especially on buying nice-to-have retail items.

During a call with analysts last week about Target’s Q1 2024 earnings, the retailer’s Chairman and CEO Brian Cornell noted that shoppers are still seeking ways to extend their budgets in the face of inflation, frequently prioritizing leisure activities over retail purchases.

Cornell explained that consumers are redirecting their spending towards services and entertainment outside their homes, activities that were limited during the pandemic. This shift back to pre-pandemic spending patterns, coupled with the ongoing pressure of higher prices on consumer budgets, is leading to persistent weakness in discretionary spending categories, particularly in home goods and hardlines.

Even wealthy shoppers are showing some more conservative tendencies in regard to how they spend on nice-to-haves. On Macy’s earnings call last week, Chairman and CEO Tony Spring highlighted that despite wage and job growth, shoppers are still feeling financial pressure, leading them to “carefully scrutinize their discretionary purchases.” Even affluent consumers are affected.

“We’re certainly seeing at the high end, the Bloomingdale’s consumer is interested in purchasing, but she’s being very thoughtful in the category she’s purchasing in,” Spring remarked, noting that while sales of luxury handbags and shoes have slowed, high-income shoppers are opting for advanced contemporary products, beauty items, and home goods.

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