Cash Cushions Dwindle for US Consumers as Savings Rate Dips

Consumers in the United States continue to spend, but their incomes are not keeping pace.

The widening gap indicates household savings may risk being depleted, and reliance on credit is intensifying.

The Bureau of Economic Analysis released data Friday (Sept. 26) showing that personal consumption expenditures (PCE) rose 0.6% in August, the strongest monthly gain since March and an acceleration from July’s 0.5% increase. Spending on durable and nondurable goods grew 0.8%, while services consumption rose 0.5%. Year over year, real PCE is up 2.7%.

However, income growth has trailed the pace of spending. Personal income rose 0.4% in August, matching July’s growth and slightly above June’s 0.3% gain. Wages were up just 0.3%, a slowdown from July’s 0.5% rise. Once adjusted for inflation, real disposable income grew only 0.1% in August, decelerating from 0.2% the prior month. On a year-over-year basis, real disposable incomes are up just 1.9%, trailing spending growth for the eighth consecutive month.

The persistence of this divergence points to a structural imbalance. Households are maintaining or even increasing consumption despite incomes that are stagnating in real terms.

The inflation picture complicates matters. The Federal Reserve’s preferred measure, the PCE price index, rose 0.3% in August and 2.7% over the past year, the highest since February. Core PCE, excluding food and energy, climbed 0.2% in the month and 2.9% year over year. While the pace of inflation is below its 2022 peak, it continues to erode real earnings and purchasing power.

Savings metrics highlight the strain. The personal saving rate fell to 4.6% in August, down from 4.8% in July and below the first-quarter and second-quarter averages of 5.1% and 5.3%, respectively.

The PYMNTS Intelligence report “Why Paycheck-to-Paycheck Consumers Can’t Weather a $2,000 Shock” underscored how fragile household finances have become. In August, 68% of U.S. consumers lived paycheck to paycheck, including 25% who struggled to pay their monthly bills. That nearly matched a record high set last year. Savings cushions are thin. The average U.S. household holds $9,869 in liquid assets, down 10.4% over the past 16 months. Among those struggling to pay bills, available savings average just $2,336, a 27% decline over the same period.

These numbers reveal how little room many consumers have to maneuver when faced with rising prices or unexpected expenses. The confidence gap is telling, as 48% of consumers say they could cover a $2,000 emergency expense within 30 days. Among those already struggling to pay bills, only 15% express such confidence. Even high-income households are not immune, as 27% earning over $100,000 a year are unsure if they could quickly raise $2,000 if needed.

The paycheck-to-paycheck dynamic is not evenly distributed. The PYMNTS report highlights a widening divide between the “saves” and “save-nots.” Two-thirds of working Americans managed to save at least 10% of their paychecks in the past six months, including 32% who saved more than 30%. At the same time, one-quarter saved 10% or less, and 8% spent more than they earned.

That divide is self-reinforcing. High-income households, able to sock away an average of 30% of their income, are better positioned to keep building reserves and weather downturns. In contrast, low- and middle-income households, saving closer to 20% or less, are falling further behind.

Generational patterns add another layer. While Generation Z workers save smaller absolute amounts due to lower incomes, they allocate a greater share of their paychecks to liquid savings, suggesting a more cautious approach in the face of economic uncertainty.

Still, optimism about saving more in the future may be more aspirational than practical, as more than half of Americans expect to boost savings over the next year, even though only a quarter did so in the last six months.

For bankers and payments professionals, the data highlights a roadmap for engagement. Consumer spending remains resilient, supporting transaction volumes and retail growth.

Financial institutions face a dual challenge. They must continue to facilitate consumer spending, which is the engine of the U.S. economy, while also preparing for potential stress in credit portfolios. Tools that provide real-time visibility into consumer financial health, combined with flexible credit and savings solutions, will be key in navigating this delicate balance.

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