Consumers in the United States are experiencing a dwindling of their pandemic savings amidst a challenging economic landscape marked by high inflation. This situation has led to a surge in credit card usage as individuals grapple with soaring prices across various sectors such as food, housing, and entertainment.
Marianne Lake, co-chief executive of JPMorgan Chase’s consumer bank, revealed at a December conference that before the pandemic, the lowest-income clients had around 12 days’ worth of cash on hand. Presently, this figure has risen to approximately 15 days, indicating that people are approaching the end of their saved funds from the pandemic period.
“We’re still on that journey, but getting closer to the end,” said Lake.
To sustain their accustomed lifestyles in the face of inflation and rising interest rates, many consumers are increasingly relying on credit cards and alternative financial products. Some are turning to installment loans offered by buy now, pay later services due to ongoing high grocery bills and mortgage rates hovering around 7%.
Increasing Delay Of Bill Payments
Credit card spending witnessed an upswing in the third quarter among major banks, with JPMorgan Chase observing a 9% increase, Wells Fargo at 15%, and Citigroup at a modest 2%, primarily due to reduced usage of store credit cards in favor of other credit forms. Concurrently, outstanding balances on credit cards surged significantly—JPMorgan’s quarter-on-quarter increase was nearly 16%, implying delayed bill payments by consumers. Wells Fargo and Citigroup also experienced jumps of 14% and 11%, respectively.
Despite a generally positive financial outlook for consumers, CEOs like Jamie Dimon of JPMorgan pointed out a noticeable trend: consumers are tapping into their savings. Deposits in JPMorgan’s consumer segment dropped by 3% compared to the previous year, and similar declines were observed at Citigroup, particularly in personal banking and wealth management. Citigroup’s CEO, Jane Fraser, mentioned a deceleration in spending growth and consumers becoming more discerning about their expenses. At Citigroup, affluent clients contributed significantly to spending growth, particularly in travel and entertainment.
Similarly, Citigroup and Wells Fargo reported declines in deposits, with Citigroup’s personal-banking unit down by 5% and Wells Fargo’s consumer-banking unit declining by 10% compared to a year ago.
Wells Fargo, experiencing a decline of 10% in consumer-banking unit deposits and 31% in wealth-management unit deposits from a year ago, attributed this decrease to consumer spending and the redirection of funds to higher-yielding alternatives.
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