Customers Cut Back: Where Households Are Pumping the Brakes

Households in the United States are struggling to cover their monthly expenses.

Rent, groceries, utilities and childcare are demanding a greater share of the paycheck. In response, consumers are making deliberate choices about where and how to cut back and stretch the household dollars further.

The PYMNT Intelligence report “Why Paycheck-to-Paycheck Consumers Can’t Weather a $2,000 Shock” found that the share of consumers living paycheck to paycheck remains stubbornly high. In August, 68% of U.S. consumers reported that they were in this position, a number that leaves little room for error when an unexpected bill arrives.

For many, the pressure has mounted to the point where even modest unplanned costs, like a car repair or a dental visit, can destabilize their finances. The average household’s liquid savings have declined by more than 10% in the past 16 months, leaving thinner cushions to absorb shocks, per the report.

These fragile finances are feeding directly into decisions about discretionary spending.

Spending growth itself is slowing. The Federal Reserve found last month that household spending was up just 4.1% year over year in August, the slowest pace in more than four years. The picture is more acute when broken down by category. Consumers continue to prioritize essentials, such as groceries and housing, but categories like apparel, travel and dining out are increasingly being trimmed back.

Households at the low end of the income spectrum are scaling back fastest, while those with more financial breathing room are still making larger purchases, particularly on durable goods. Even then, however, many are doing so more cautiously than before.

The day-to-day reality of these trade-offs is playing out in the grocery store. Families are leaning on low-cost prepared mixes such as Hamburger Helper, which saw sales jump compared with last year, The New York Times reported Monday (Sept. 22). For families trying to stretch a dollar, these boxed staples are a way to manage the rising price of beef and other proteins without eliminating them entirely from the dinner table. It is a small but telling marker of the kinds of substitutions households are making to preserve some semblance of normalcy in their diets while keeping costs under control.

Entertainment and leisure spending, often considered discretionary, is also under pressure. Visitors to Las Vegas were down nearly 8% year on year, with high resort fees, expensive meals and elevated airfares dampening demand, the Financial Times reported Tuesday (Sept. 23). Casinos closer to home, meanwhile, are seeing more business as consumers opt for shorter, less costly trips. Even when it comes to leisure, the search for value is driving substitution rather than outright elimination of spending.

At the same time, credit card behavior is changing in ways that underscore financial strain. Card spending growth has slowed across all income groups, according to Bank of America data released in May. Many consumers are making only minimum payments, an indicator that balances are becoming harder to manage. This pullback has implications not only for household budgets but also for the financial institutions that rely on transaction volume. As more people restrain their spending or defer purchases, banks, card issuers and merchants will see effects ripple through revenues.

The pressures are not confined to low-income groups. Even households earning more than $100,000 a year reported growing unease, with more than a quarter saying they would struggle to come up with $2,000 in an emergency, per the PYMNTS Intelligence report. The paycheck-to-paycheck phenomenon has broadened into what is effectively a two-track economy.

On one track are households with enough of a cushion to continue saving, investing and spending on big-ticket items. On the other are households tightening belts, searching for discounts and scaling back on experiences that once felt routine.

Psychology is also shaping behavior. Inflation, tariffs and political uncertainty have left consumers wary of higher prices in the months ahead. As a result, some are stocking up on essentials now to avoid paying more later, while others are delaying purchases in the hope that conditions improve. In both cases, the result is a departure from normal spending patterns, with distortions in demand depending on the category.

For payments and financial services providers, the shifts are a warning and an opportunity. On one hand, slower consumer spending growth and rising credit stress could weigh on transaction volumes and elevate delinquency risk. On the other, merchants and platforms that cater to value-conscious consumers, from discount grocers to budget travel providers, stand to benefit. Payment solutions that help consumers stretch their dollars, whether through rewards, budgeting tools or installment options, may find stronger demand in this environment.

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