By Roy Urrico
Finopotamus aims to highlight white papers, surveys and reports that provide a glimpse into what is taking place and/or impacting credit unions and other organizations in the financial services industry.
Most Americans are cutting back on what they plan to spend during the holidays because of inflation and economic uncertainty. A new survey, The Credit Economy: How Consumers are Approaching Holiday Spending and Travel, from Redwood City, Calif. -based, banking and payments solutions provider i2c Inc. and payment information source PYMNTS explored consumers’ decisions about gift giving and holiday travel this year, as well as interest in using credit products.
“Economic uncertainty and inflationary pressures have remained stubbornly high heading into the 2023 holiday season,” said the report. “As a result, many U.S. consumers plan to cut their spending this year — though they do not intend to skimp on gifts. Instead, they plan to trim other seasonal expenses, such as travel and dining out, to make ends meet.”
i2c sponsored the survey, which was conducted by PYMNTS Intelligence using a cross section of 3,302 consumers in the U.S. polled between Sept. 20 and Sept. 26, 2023.
Cutting Down but Not Cutting Out
The survey found Inflation is a key factor driving many U.S. consumers to trim seasonal expenses, such as travel and dining out, to make ends meet. However, most American consumers are not planning to reduce what they spend on gifts. Gen Z, in fact, will spend more on gifts than last year. Credit cards, the most popular type of payment product, covers a significant amount of holiday spending.
Gen Z’s preference for buy now, pay later (BNPL) options, however, showcases a shift toward more flexible, cash flow-friendly payment solutions. “This trend signals an opportunity for financial service providers to innovate and cater to these evolving consumer preferences, with potential to reshape the holiday retail landscape,” noted the study.
PYMNTS data found that consumers plan to cut spending this holiday season by 26% compared to 2022. On average, consumers anticipate spending approximately $860 this year on non-gift holiday purchases — experiences such as live entertainment or retail products for personal use — compared to $1,160 in 2022.
Meanwhile, spending on gifts will rise modestly year-over-year across income levels and average roughly $1,000 in aggregate. Personal finance considerations have an outsized influence on consumers’ spending decisions — especially at the holidays. On average, just 1 in 4 respondents currently plan to travel for the holidays. For those who do, they anticipate spending roughly $1,950, on average.
Credit Usage and Generational Pay Gaps
Finally, the data shows that credit cards remain the most popular type of credit product used for all holiday purchases, with 3 in 4 consumers planning to cover their expenses in this way. Moreover, credit card usage to power through the holiday shopping list increases with annual income.
Still, it varies by age group, as younger consumers opt for other credit products, such as BNPL. Among consumers who choose not to use credit products instead use alternatives headed by debit cards and cash to pay for travel.
Meanwhile, the generational divide in spending habits is becoming increasingly pronounced. Gen Z’s anticipated 55% increase in gift spending, fueled by job stability and stronger personal finances, contrasts starkly with the overall trend of spending reduction. This divergence underscores the unique economic positioning of younger consumers and suggests a shift in market focus.
According to the report, a notable evolving landscape of payment methods during the holiday season shows a prominent reliance on credit cards, especially among millennials and high-income shoppers. This reflects a continued preference for more conventional deferred payment options in the face of economic uncertainty.
Other Key Report Takeaways
· Nine out of 10 holiday shoppers anticipate taking some action to mitigate rising prices. Most holiday shoppers plan to offset rising prices by budgeting, reducing overall spending or picking up additional shifts. Gen Z consumers represent an outlier, however, and those planning to increase gift spending cite job stability or perceived financial stability this year.
· More than one-third of holiday shoppers will reach for gift cards, one of the most popular gifts this year. Traditional in-store shopping continues to dominate following the lifting of pandemic-related restrictions. Affluent consumers have the highest propensity for online shopping, though most still favor in-person experiences. Retail products still take overall precedence, at 58%, with clothing as the standout within the retail category, at 39%. Consumer electronics are a planned purchase for 14% of shoppers.
· The most popular payment method this holiday shopping season will be credit cards. Eighty-two percent of millennials and 87% of higher-income consumers plan on using credit cards to pay for at least some of their holiday purchases.