How did COVID influence the wallet?New market research from the consumer credit site wallethub.com measures the influence the pandemic may have had on consumer spending. Read more here.
The holiday shopping season is over now, and many Americans are seeing the impact on their credit card bills and bank statements. Even before the holiday season, though, the COVID-19 pandemic already wreaked havoc on people’s wallets, forcing them to reevaluate how much they were able to spend. In a nationally representative survey conducted by WalletHub, 42% of respondents said they did not make a large purchase last year due to COVID-19.
Different people have been impacted to different degrees due to the pandemic, though. People with high incomes and stable employment may have no trouble putting large purchases on a credit card, reaping rewards, and paying them off quickly. It’s a different story for Americans with less stable incomes, though, especially the millions who have become unemployed because of COVID-19. When it comes to non-essential large purchases, they may be better off saving up and paying in cash. “If they don’t pay bills monthly and carry a balance with a high interest rate, relying on cash is a good discipline,” says David Laibson, a professor of economics at Harvard University.
Again, around 42% of Americans did not make a large purchase last year due to COVID-19. The pandemic has left millions of people unemployed and forced people to reevaluate how much they can afford to spend. Understanding consumers’ attitudes and choices regarding large purchases is particularly important at this time of the year, with bills from holiday shopping coming due and Valentine’s Day looming large.
- Maxing out is worrisome. 91 Million Americans fear maxing out their credit cards on large purchases
- Men max out more. Women are about 7% less likely than men to have maxed out a card at least once
- Age shapes our definition of “large.” Millennials are almost twice as likely as Baby Boomers to choose “over $100” as the benchmark for a large purchase
- Spending permission needed. Nearly half of Americans have to check with someone else before making a large purchase
WalletHub Q&A: A Conversation with analyst Jill Gonzalez
Should people fear maxing out their credit card when making a large purchase?
Approximately 91 million Americans are worried about maxing out their credit card on a large purchase, so it’s a common concern. It’s good to have a healthy amount of concern, though, as the COVID-19 pandemic has put many people in a difficult financial position and left millions unemployed. Before making large purchases, people should consider how essential those purchases are and whether they can really afford to spend that much.
What tips do you have for people who fear maxing out their credit card when making a large purchase?
The key to worrying less about having enough spending power to make a big purchase is to carefully manage your available credit. It’s important to keep a close watch on your balance so that you are always aware of what you have already spent. People who do this will be less likely to max out their cards or overspend in general. Another good habit is to pay your credit card bill several times a month, especially when you are planning to make a large purchase. That way, you will have more of your credit line available at any given time. In addition, if you have a history of paying your monthly credit card bill on time and using a small percentage of your credit, you may want to ask your issuer for a credit limit increase.
How has COVID-19 impacted people’s ability to make large purchases?
Due to the COVID-19 pandemic, around 42% of Americans have not made a large purchase in the past year. This makes sense considering the fact that the pandemic forced many people out of a job, and the unemployment rate currently sits at 6.7%. People in the low- and middle-income brackets were prevented from making large purchases at similar rates (around 49% and 46%, respectively), while only 28% of high-income individuals had to forgo large purchases.
What do people consider to be a “large” purchase?
The definition of a ‘large’ purchase varies across different demographics, but the biggest share of people, at around 30%, consider it to be anything over $100. People’s idea of a large purchase differs sharply between age groups – for example, Millennials are almost twice as likely as baby boomers to choose ‘over $100’ as the benchmark for a large purchase. Baby boomers are also the only age bracket for which ‘over $1,000,’ the highest choice, was the most common answer.