The Resilient Consumer?

 Those of you who are business news junkies such as I have seen and heard commentary that the American consumer is holding up very well these days.

Credit card balances exist but, on balance, are not out of control. Retail, always a tough game, is better than many expected going into 2025.

Dig a bit deeper and ignore the top line averages and a different picture comes in to focus. According to several sources in the consumer credit industry, it appears that approximately 60% of US households are living “paycheck to paycheck”. This means they do not have anywhere near the savings cushion of six months living expenses that most financial planners recommend for a family.

With that in mind, I went back to some Federal Reserve data. Each year, they publish a mini report that measures what percentage of American households could handle a cash emergency to cover a car or appliance need, an emergency health issue or other expense to the tune of $1,000.

Things have not improved over the last few years. Some 41% of households could not cover a $1,000 surprise expense with cash or check. Some 30% would put in on their credit card (already having a balance), 11% would go to family or friend, some would ask for a delayed payment or payment plan and a small group said that they would not pay. Interestingly, when I probed about the 11% going to friends or family (outside the Federal Reserve report), it appears some cannot go to friends or family anymore as they are tapped out as well or they have never been paid back from previous bailouts. Also, on a regional basis, 57% of people in the South could not come up with $1,000 readily and 54.6% of people in the Northeast were in the same boat.

Many Americans have no breathing room anymore. Most people need a car to get to work. Fortunately, cars are much more reliable than they used to be. Old timers (meaning me) remember the horrible cars that came out of Detroit in the early ‘70’s. After four years, they were largely ready for the junkyard. As I type, the average age of on road vehicles in the U.S. is at an all time high of 12.6 years. The average new car sold in the U.S. weighs in at $48,000. This is way out of reach for the bottom 40% of Americans.

There are some Nissan and Volkswagen models in the $20-24 range that are not loaded but can provide transportation but are not good most families. About 9% of U.S. auto loan holders pay $1000+ a month in payments according to Lending Tree data. Credit analyst Experian pegs the average payment at $700 per month. Many of those are on 7 to the new 8-year loans! 

If someone is struggling, how about buying a clunker? Well, used car prices have been on the rise and remember, 40% cannot easily deal with a $1,000 repair bill and they are still borrowing to purchase the used car.

Another straw in the wind that I have observed is the growth of BNPL (Buy Now, Pay Later). They get the item they may desperately need but soon payments come due. Much the same has happened with student loans that are no longer deferred.

Most of you reading this may say that such sad statistics do not apply to me. Fair enough. Yet, if you are a marketer, you need to keep a very close eye on it. 

When the next downturn occurs (I have no idea when), the bottom half of America, already stretched, is going to be in a world of hurt. 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.