Consumers are looking for all sorts of ways to save money after facing rising inflation and higher costs, as companies struggle with rising labor costs and bottlenecks in the supply chain.
Shoppers are also looking for ways to reduce costs as their food and gasoline bills have risen steadily for months.
“Consumer discretionary spending may not decrease, but it is unlikely to grow as fast,” Greg McBride, chief analyst at Bankrate, a New York-based financial data firm, told TheStreet.
Household goods are not easy to find right now and consumers are postponing large and expensive purchases that require loans and credit information such as homes, cars, white goods or furniture.
They also put a stop to leisure activities such as travel and exercise equipment, according to a survey of 2,200 people surveyed in February by Morning Consult.
Wages have not kept pace with inflation in many industries, leaving people with less disposable income to spend as they accumulate more debt.
“Household budgets are being squeezed across the income spectrum, with debt levels moving higher and savings going down,” he said. “This will limit how much households have available to spend on discretionary items and also their willingness to spend it.”
Higher inflation rates have spread across several industries, including food, energy bills, rents and even furniture. Inflation rose to 7.9% in February,
“Inflation is pervasive and it is still accelerating,” McBride said. “Next week’s consumer price index will not be beautiful. Only time will tell if what we see now turns out to be the peak in the inflation rate.
Here’s where people save
Consumers said they spent 8.4% more in February 2022 compared to February 2021, but their income increased by only 4.9%.
Although tax rebates may fill the gap temporarily, spending levels may not be feasible in the long run, the report said. The average repayment in February was $ 2,845.
The Morning Consult survey showed that 74% of consumers chose to wait before buying a new car, with about half saying they did not want to pay the high prices, and 27% of that group saying they wanted more stock.
Housing prices have soared from an increase in demand and lack of fixtures and fittings and the listing price for a home is now close to $ 400,000 based on data from Realtor.com. That’s almost $ 100,000 more than three years ago and an increase of 13% from last year.
“The fact that so many American adults did not buy a car or a home last month does not mean they no longer need a car or a home,” Morning Consult economic analyst Kayla Bruun wrote in the report.
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“Instead, it means a change in how Americans view such purchasing decisions: they think they are better off not making the purchase right now,” she writes.
Ways to save money
Consumers are cutting back where they can, such as buying less meat in the grocery store, driving less to cut gas costs, eating more at home and refinancing student loans.
“There are not many places to hide because inflation is so widespread,” McBride said. “This is one reason why discretionary spending is so susceptible to a slowdown because it may be the only area where households can pull back at a time. The worst of the price increases are in areas that are necessary: food, shelter, gas and energy.”
Consumers will need to cut back on some of their expenses such as food, streaming services, gym memberships and other entertainment, Bruce McClary, vice president of marketing for the National Foundation for Credit Counseling, a Washington-based nonprofit, told TheStreet.
Even cutting back for a few months can give a budget some respite, he said.
“The choice does not have to be all or nothing,” McClary said. “Either way, the results can have an immediate effect. Those who try to maintain discretionary spending levels without savings, budget adjustments or revenue to offset price increases may become more dependent on credit cards and other available types of consumer credit.”
Use your debit card or cash
Paying for your discretionary items or other expenses with cash or a debit card can also reduce certain expenses.
“Adjusting credit card spending is another area where some savings can be realized,” he said. “Ideally, it is best to avoid interest by paying off your credit card balance within the current billing cycle to avoid the extra cost of interest. However, not everyone is able to do so.”
Looking for another credit card with a lower interest rate can be worth it.
“If you have a competitive credit score, you may be able to secure a more affordable interest rate or move your balances to a card that offers a temporary interest-free repayment period,” McClary said.
Shortening the time you drive by combining your errands can be a way to spend less money on gasoline.
“If you have a fuel-intensive car, your budget can benefit from lifestyle adjustments that consolidate necessary issues or reduce your dependence on your vehicle overall,” he said.
While some experts estimate that inflation is at or near its peak and is likely to end the year with a downward trend, consumers with cash are already paying higher prices at the pump.
“Fuel price increases accounted for nearly two-thirds of the recent rise in the consumer price index,” McClary said. “The rump effect can be seen in a 1% increase in food prices in January. When fuel prices come under control, other inflation areas are likely to benefit from price stabilization or a reduction.”