Where Does it All Go?

The thrill of payday is short-lived for many consumers.

August 5, 2014

Payday RR

“It’s Friday!” is a joyful exclamation for many consumers, not only because Friday heralds the weekend’s imminent arrival, but also because it’s payday!

The thrill of payday may be short-lived, however, as “Even Finance-Conscious Consumers Spend Swiftly After Payday,” according to The Wall Street Journal.

“Theory would dictate that if people know they take home $1,000 every two weeks, they should be equally as likely to spend that money on any day between payments.”

This, however, is not the case. “Instead, spending spikes in the first days after a payment is received.”

It is not the fancy coffee splurge that accounts for “volatility” in expenditures, but rather, it’s often in paying the bills.

Indeed, “close to half of increased spending in the days after Americans receive pay or benefit checks comes from recurring payments such as rent or mortgage bills,” and “many carefully plan their finances and make big payments when they have the most cash.”

Research this week reveals where and how various consumers are spending. Read on and you’ll discover that many consumers live paycheck to paycheck—including some you may not expect.

How do your members spend? How can you help them find opportunity to learn, save or invest?

‘There’s a foot race between gas bills and paychecks.’—Jerry A. Webman, economist

Consumers Spending More, Just Not on Things They Want,” says Gallup. “The increasing cost of essential items is further constraining family budgets already hit hard by the Great Recession and still reeling from a stagnant economy.”

Nearly half of Americans (45%) say they spend more now than one year ago, and 18% say they spend less. Household expenses account for increased spending, not discretionary items.

About one-third of Americans say they are spending less on travel, eating out, clothes, electronics, and leisure pursuits.

“Because consumer spending is the lifeblood of a healthy economy, these findings suggest that discretionary spending still has a way to go before it will fuel the kind of economic growth Americans have been hoping for.”

What are daily consumer expenditures? Over a 14-day rolling average, Americans spend $93 per day as of July 15, 2014, according to the “Gallup Daily: U.S. Consumer Spending” chart.

“Average expenditures per consumer unit for July 2012 through June 2013 were 1.5% higher than the July 2011 through June 2012 midyear average,” notes the Bureau of Labor Statistics in the “Consumer Expenditures Midyear Update.” 

In addition to trends of increased expenditures, “Average incomes were essentially unchanged, showing a slight drop of 0.2%.”

Spending trends include:

  • Increased cash contributions for child support, charitable causes, and support of college students;
  • Vehicle purchases drive a 5.8% increase in transportation spending;
  • Mortgage interest and charges fell to $3,075 from $3,153; and
  • Health care spending increased to $3,520 from $3,466.

In contrast, “The Deloitte Consumer Spending Index… showed a marginal decline in May.” This index is comprised of “tax burden, initial unemployment claims, real wages, and real home prices.”

Retailers are challenged to reconsider what drives revenue as the economy continues its slow recovery, says Deloitte. Retailers can digitally influence consumers as they shop. “In home improvement stores, digital devices influence 42 cents of every dollar spent… higher than the average of 36 of every dollar across all categories.”

‘If you must have motivation, think of your paycheck on Friday.’—Noel Coward

Children fuel much of the increased spending: “Having Children Major Driver of Spending Patterns in U.S.” says Gallup. “Americans who have at least one child under the age of 18 report spending $29 more daily, on average, than those without younger children.”

The number of children per household is also a factor in consumer spending, as parents with one child under 18 spend $96 per day, and parents with at least five kids under 18 spend $145 daily on average.

Overspending? File That Under #MotherProblems” says eMarketer. “When mothers go shopping, they’re likely leaving the store with items they didn’t intend to purchase.”

Fifty-one percent of survey participants say overspending “was the most frustrating part of shopping for or with their family.”

This overspending equates to $2,600 annually, on average, for those embarking on weekly family shopping excursions.

While U.S. adults are doing a better job of handling household debt, there’s always room for improvement, according to The Street.

Consumers can boost savings by avoiding late payments, not carrying monthly debt balances, and buying generic, not brand-name, products.

Finally, two sources indicate living paycheck-to-paycheck is an issue for some consumers.

First, “Over Half of Millennials Living Paycheck to Paycheck” says NBC News. Four in ten in this group “are overwhelmed by debt,” much of it student loans. Sixty-four percent of millennials paid for school with student loans.

Five in 10 of millennials are not saving for retirement, 81% of which say they must first pay off their debts before such saving can occur.

Second, note “Middle Class and Living Paycheck to Paycheck,” as reported by CNN Money.

Here, “More than 25 million middle class American families are living paycheck to paycheck” and “They have decent salaries” as well as retirement accounts and homes. But savings and liquid assets are not part of the bargain.

Roughly one-third of American households spend all of their paychecks, including 66% of middle-class families with a median income of $41,000.

Fortunately, “most Americans aren’t living hand to mouth for long. Middle-class families are typically in this situation for 3.5 years, while poorer households lack a cash cushion for 4.5 years.”

Some say “money makes the world go round.” Some consumers struggle to gain momentum while others may experience a bit of dizziness with their expenditures.

How can your credit union provide stability no matter where your members are in the rotation?

LORA BRAY is an information research analyst with CUNA’s economics and statistics department.