Retailers See 78% Boost From Budget-Constrained Shoppers’ Use of Credit

As financially unstable consumers seek ways to afford to shop, credit is enabling them to make higher-value purchases, and retailers are seeing the benefit.

The latest installment of the PYMNTS Intelligence The Last Transaction series, “Contrasting the Consumer Credit Habits of Choice and Necessary Financers,” drew from a survey of more than 2,700 U.S. consumers to better understand their credit habits. The study identified three groups: necessary financers, who usually use credit out of necessity; middle financers, who use credit out of necessity about half the time and out of choice the other half; and choice financers, whose use of credit is driven by necessity less than half the time.

The findings revealed that necessary financers spend an average of $109.02 on retail products when using their credit cards, a 78% increase over the $61.27 they spend on average when they use debit cards.

The sharp difference suggests that necessary financers may feel more constrained by their available funds when using debit cards, which are directly tied to their bank account balances. In contrast, the use of credit cards provides them with the flexibility to make larger purchases, possibly due to the availability of credit limits that allow for greater spending than their immediate cash reserves. This behavior reflects the reliance of necessary financers on credit to manage their financial needs and possibly maintain their standard of living despite financial constraints.

However, where possible, the most budget-constrained consumers try not to do this. Additional PYMNTS Intelligence research found that among the 27 million U.S. consumers who live paycheck to paycheck on an annual income of $50,000 or less with issues paying their monthly bills, cash tends to be preferred.

“For financially stressed consumers, it is also their best budgeting tool,” PYMNTS’ Karen Webster observed. “It’s pretty straightforward to decide how and when and how much to spend money when the stack of bills in their leather wallets is a visible reminder of how much they have left to spend.”

These consumers make roughly the same number of retail purchases as other groups. However, they spend less per retail purchase than others do. The Last Transaction study’s findings revealed that they spend an average of $81.06, down 16% from choice financers’ average of $96.32.

The gap indicates that necessary financers are more budget-conscious and cautious with their spending, likely due to tighter financial constraints. Despite their use of credit cards, they still tend to limit their expenditures per purchase compared to choice financers, who likely have more financial flexibility and spend more freely. This behavior underscores the financial prudence necessary financers must exercise to manage their limited resources effectively.

Most consumers are looking to be more thoughtful in their purchases. Per the PYMNTS Intelligence “The New Reality Check: The Paycheck-to-Paycheck Report,” 60% of consumers have cut back on nonessential spending due to retail product price increases. That share rises to 69% among consumers who earn less than $50,000 annually.

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