Consumers’ Ailing Financial Health Could Cast a Shadow Over the Holiday Shopping Season

As the holiday shopping season heads into the home stretch, consumer concerns over withered buying power due to inflation is expected to tamp down overall spending, according to J.D. Power’s Banking and Payments Intelligence Report.

In a November survey of 4,000 retail bank customers nationwide, 40% said they expect to spend less overall on gifts and purchases in 2022 than they did in 2021. In comparison, during the 2021 holiday shopping season, just 24% of said they expected to spend less than the previous year. One sliver of good news in the holiday spending forecast is the number of consumers that expect to spend more this holiday season is up from the previous year, totaling 20% compared to 13% in 2021.

Some 53% of customers said they will be using cash and debit cards and 36% said they will use credit. Of the consumers that plan to use credit, 15% expect to carry the debt beyond one month and 19% indicate their credit use will be higher overall for the holidays in 2022 than it was in 2021. Surprisingly, buy now, pay later loans are not expected to be a favored form of credit for making holiday purchases, the report says, as just 5% of consumers expect to leverage that payment option.

The primary reason for the expected decrease in holiday spending is that consumers feel their financial health is weaker than it was a year ago, largely due to inflation, according to the report. Just 29% of consumers said they are financially healthy, a new 12-month low, and 45% say they are financially stressed, which matches the 12-month high of July 2022.

“What’s more, customers’ confidence that they can manage inflation has dipped to a new low,” the report says. “It seems an entire month of spending couldn’t have come at a worse time, and customers are feverishly contemplating how they’re going to make some Santa magic in the face of an economic crisis.”

When it comes to taming inflation, 44% of respondents are of the mindset that it will take more than a year before prices start to normalize. Consumers under the age of 40 are trying to lessen the impact of inflation, with 17% saying they have set a new budget for day-day to expenses in the past 30 days, compared to 7% of consumers over 40.

One potential bright spot when it comes to consumers’ financial health is their reliance on paying for holiday purchases with debit cards. “With most banking customers relying on cash and debit cards this holiday season, and many fine-tuning their spending and budgeting, we may have begun to see the beginning of some critical behavior changes that will influence future financial health,” the report says. “In the coming months, banks will have an opportunity to help customers manage these debts, and that could act as an introduction to a broader suite of services that can help customers handle a potential recession.”