LendingClub and PYMNTS Research Shows Young
and Affluent Are Hit More Frequently by Unexpected
Expenditures
SAN
FRANCISCO, June 26, 2023 /PRNewswire/
-- LendingClub Corporation (NYSE: LC), the parent company
of LendingClub Bank, America's leading digital marketplace bank,
today released findings from the 23rd edition of the
Reality Check: Paycheck-To-Paycheck research series, conducted in
partnership with PYMNTS. The Emergency Spending Deep Dive
Edition examines the impact of financial stressors, such as
emergency spending, on consumers' ability to manage expenses and
put aside savings as well as the rising trend in unexpected
expenditures among young and affluent consumers. The series draws
on insights from a survey of 3,620 U.S. consumers conducted from
May 3 to May 18, as well as analysis
of other economic data.
In May 2023, the Federal Reserve
released the "Economic Well-Being of U.S. Households in 2022," the
latest edition of an annual report often used in measurements of
financial well-being.1 Since 2013, these annual reports
have tracked consumers' stated ability to afford a theoretical
$400 emergency expense — a number
that seems outdated in today's economic environment.
LendingClub and PYMNTS have examined this topic since 2022 and
have found that the $400 benchmark
does not accurately reflect today's consumer experience. In fact,
two-thirds of the unexpected expenses* consumers experienced cost
more than the benchmark of $400, with
41% spending double that amount or more. Furthermore, the average
emergency expense was approximately $1,700, reflecting a year-over-year growth of
16%.
"It's very clear that the $400
emergency expense benchmark is no longer an accurate figure to use
when assessing a consumer's overall financial well-being as it
doesn't factor in inflation over the last decade or address the
macroeconomic volatility we've seen since the beginning of the
pandemic," said Alia Dudum,
LendingClub's Money Expert. "Despite their best efforts to live
within their means, consumers face unexpected expenses regularly
that stress their budgets and impact their ability to meet their
financial obligations causing the financial health of many to
remain fragile."
Today's Paycheck-to-Paycheck Landscape
In May 2023, 57% of consumers
lived paycheck to paycheck, with fewer struggling to pay bills
compared to May 2022. This can be
explained by fluctuations in financial lifestyle among high-income
consumers. For instance, in May 2023,
41% of consumers earning more than $100,000 annually reported living paycheck to
paycheck, an 8 percentage point drop from April 2023. The recent shifts in financial
lifestyle indicate that consumers are finding ways to mitigate
ongoing inflationary pressures by managing their spending and
living within their means. However, unexpected emergencies are
happening more frequently, and the costs of those events are
increasing which has a fundamental impact on consumers' overall
financial well-being.
The True Cost of an Unexpected Emergency
In the three months prior to May
2023, nearly half (46%) of U.S. consumers stated they faced
an unexpected emergency, with millennials and high-income consumers
facing them at even higher rates. In this same timeframe, consumers
earning more than $100,000 annually
were 34% more likely to have faced emergency expenses than their
low-income counterparts.
While the share of consumers who have faced an emergency expense
is virtually unchanged from July
2022, the average cost to consumers of these expenses
continues to inflate, growing 16% over last year — from
$1,400 to $1,700. For example, car repairs and
health-related expenses, the most common unexpected events, cost an
average of $1,300 and $1,500, respectively. Furthermore, unexpected
health-related expenses increased 7% year over year. With rising
inflation and the increased cost of emergency expenses, the Federal
Reserve's indicator of financial distress for over a decade is
losing relevance.
Consumers' Ability to Pay for the Unexpected
How consumers pay for emergency expenses correlates with their
financial situations and the cost of the expense. For example, most
consumers use available funds to cope with unexpected expenses,
unless they face financial hardships or the cost was equal to most
of, or all of, their savings.
According to the data, 51% of all consumers reported paying for
unexpected expenses with cash or money from their savings accounts
in the three months before May 2023,
while 33% used financing or alternative sources to pay for
unexpected expenses. In fact, 28% of consumers used credit cards to
pay for the expense and settled the amount in full, while 18%
revolved the balance or used installment payments. The data also
shows that 54% of consumers who used financing said emergency
expenses represented 60% or more of their savings — an indication
that consumers turn to financing when the cost of the emergency
expense cuts too much into their available savings.
While consumer financial lifestyles dictate how they choose to
finance an unexpected emergency, two-thirds of consumers overall
were able to face unexpected expenses without reducing everyday
spend. However, the size of the expense in relation to a consumer's
savings impacts whether they need to make cutbacks: 58% of
consumers facing expenses that were 60% or more of their current
savings or who had no savings to speak of cut back on spending,
with 28% making extreme cutbacks. Fifty-one percent of those using
financing to pay for an emergency expense cut back on everyday
spend, which suggests weak financial grounding of those who used
credit. Postponing large payments is another alternative considered
by those surveyed when faced with unexpected expenses, with
nonessential housing and vehicle expenses ranking at the top.
"We're seeing a false sense of security where consumers feel
they have enough savings and/or available cash to cover unexpected
expenses," continued Dudum. "The reality is, as unexpected
emergencies become more frequent and the cost for those expenses
continues to rise, have consumers really prepared enough and will
the same saving levels from previous years be enough to help them
navigate the future?"
To view the full report, visit:
https://www.pymnts.com/study/reality-check-paycheck-to-paycheck-emergency-expenses-savings-financing/
*Unexpected or emergency expenses are defined as certain
types of unanticipated expenses of at least $100 or more that consumers were forced to pay
for in the last three months. These may include surprise medical
expenses, tax bills, and urgent home or car repairs, but do not
include spending on travel, electronics, clothing or other
equipment.
Methodology
New Reality Check: The Paycheck-to-Paycheck Report — The
Emergency Spending Deep Dive Edition is based on a census-balanced
survey of 3,620 U.S. consumers conducted from May 3 to May 18, as well as analysis of other
economic data. The data in this report is not intended to represent
LendingClub's core member base. The Paycheck-to-Paycheck series
expands on existing data published by government agencies, such as
the Federal Reserve System and the Bureau of Labor Statistics, to
provide a deep look into the core elements of American consumers'
financial wellness: income, savings, debt and spending choices. The
survey sample for this report was balanced to match the U.S. adult
population in a set of key demographic variables: 51% of
respondents identified as female, 33% were college-educated and 38%
declared incomes of more than $100,000 per year.
About LendingClub
LendingClub Corporation (NYSE: LC) is the parent company of
LendingClub Bank, National Association, Member FDIC. LendingClub
Bank is the leading digital marketplace bank in the U.S., where
members can access a broad range of financial products and services
designed to help them pay less when borrowing and earn more when
saving. Based on more than 150 billion cells of data and over
$85 billion in loans, our advanced
credit decisioning and machine-learning models are used across the
customer lifecycle to expand seamless access to credit for our
members while generating compelling risk-adjusted returns for our
loan investors. Since 2007, more than 4.7 million members have
joined the Club to help reach their financial goals. For more
information about LendingClub, visit
https://www.lendingclub.com.
CONTACT:
For Investors: IR@lendingclub.com
Media Contact: Press@lendingclub.com
PYMNTS Contact: information@PYMNTS.com
1 Report on the Economic Well-Being of U.S.
Households in 2022 - May 2023. Board
of Governors of the Federal Reserve System. 2023.
https://www.federalreserve.gov/publications/2023-economic-well-being-of-us-households-in-2022-executive-summary.htm.
Accessed June 2023.
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SOURCE LendingClub Corporation