Depleted Savings Weigh on Consumer Spending Outlook

A new report reveals that depleted savings are becoming a critical factor in determining the financial stability of households. According to the PYMNTS Intelligence study "Household Finances Flash a Warning Behind Stable Consumer Confidence," 19% of households reported their financial lifestyle deteriorated in the previous year, while only 7.1% said it improved.

The amount of savings a household had played a significant role in whether they could handle financial hardships or fell into financial difficulty. Among households that were living paycheck to paycheck without issues a year earlier, 66% of those who later struggled financially had exhausted their savings in the past 90 days or never had savings to begin with.

Only 37% of those who remained comfortably paycheck to paycheck and 25% of those who moved out of paycheck-to-paycheck living experienced the same outcome. Households with depleted savings faced greater challenges covering large expenses, with only 26% able to cover more than three months of expenses from savings, compared to 46% whose financial situation remained stable and 62% whose finances improved.

The report also highlighted the widespread impact of higher everyday costs, with 71% of households whose bills became harder to pay saying that essential prices had outpaced their income, a concern shared by 76% of those whose financial lifestyle remained stable. Unexpected bills exposed the consequences of having little financial cushion, with 28% of households facing an expense of at least $1,200 during the previous 90 days.

The report found that 34% of households living paycheck to paycheck and struggling to pay bills faced such an expense, compared with 27% among households not living paycheck to paycheck. Payment choices changed as households' ability to absorb costs evolved. Among struggling paycheck-to-paycheck households, 36% covered their largest unexpected expense with cash, checking, or savings, while 56% of households not living paycheck to paycheck did so.

Additionally, 35% carried a credit card balance, 27% borrowed from family or friends, 21% skipped or delayed a bill, 15% used a payday loan, cash advance, or overdraft, and another 15% used buy now, pay later (BNPL). For banks and financial providers, the findings underscore the importance of liquidity as a practical pressure point, with a need for savings tools that help households maintain emergency reserves and payment and credit products that allow consumers to manage unavoidable expenses without exhausting those reserves.