With high inflation, are savings out of the picture for American consumers?

While inflation has been slowing down, it has taken a toll on many American households and consumers. This is retroactively affecting saving habits across the board as consumers have to spend more to afford basic necessities.

This increased expenditure is funded in part by credit cards, a new report by Plinqit suggests. Credit card balances reached a high of $841 billion in the first quarter of 2023 – a quarter that is still unfolding.

Moreover, as costs of living increase, consumers are strapped for cash and 61% report living paycheck to paycheck, which is 9% more than last year. As the chart below shows, younger consumers (18-44) are more tied up in various expenses – such as paying off debts, planning for a major life event (like marriage or a baby), purchasing a home or a vehicle – than their older counterparts. Older groups are saving for retirement. 

While this is in line with consumer behaviors for each group, it is important to note that 94% of Americans between the ages of 18 and 55 are saving, compared to 85% of those above the age of 55. 

Given the turbulence of the past few years, paying off debt has started ranking high on the list of savings priorities for most Americans. Amongst large purchases, securing a means of transport ranks higher than other competing expenditures like medical costs or buying a home.

However, more Americans are putting money away for retirement than saving for other life events, like marriage or going to college. As mentioned earlier, credit card balances are high, and this is confirmed by the data below as it shows consumers prioritizing paying off credit card debt over other types of debt, like student loans. The top three saving categories for consumers are emergency funds (43%), travel (43%) and paying off debt (42%).

While savings are down, three-quarters of Gen Zers and 69% of Millennials said they’d consider relocating to a different state, moving to a more affordable but less desirable area, or taking a discount on a fixer-upper to achieve their dream.

Despite the high cost of living and turbulent economic conditions, most Americans (74%) still view owning a house as the prime indicator of achieving the American Dream, reports a recent Bankrate survey. This priority tops other considerations like being able to retire (66%), maintaining a successful career (60%), or having children (40%). 

Younger consumer groups like Gen Z and Millennials report willingness to relocate to a different state (27%), to a less-desirable but more affordable locality (11%), or putting a down payment on a fixer-upper (21%), to achieve the American Dream.

Signs of change are slow but present, and financial institutions and fintechs alike are working to meet consumers where they are. For example, last year, Timberland Bank partnered with Plinqit, a digital savings tools provider that pays customers for engaging with educational materials.

“Banks have these beautiful websites, with great financial education content, that they're trying to get into the hands of the consumers. But unfortunately, 90% of the clients go right through the beautiful website and go into online banking,” Kathleen Craig, CEO and founder of Plinqit, told Tearsheet last year.

In times where savings are taking a hit, the appetite and need for such tools has increased. According to Craig, the partnership has already yielded promising results:

“After choosing to partner with Plinqit in March, Timberland Bank was live with the platform by December. Since going live, the bank has helped users save a total of $16,867 and counting. On average, users are setting goals to save $1,394 over the course of 9 months.”