As we enter the new year of 2025, a clear schism appears between the American consumer. High earners are still all-in on high-end discretionary spending, but low-income Americans are fiscally conservative. A big driver of these trends. This duality in consumer behavior reflects broader economic trends and growing disparities in spending power.
Recent reports indicate that Synchrony, a financial services company catering primarily to lower-income consumers, experienced a 6% increase in spending. However, underneath that positive trend lies something deeply concerning. Lower-income card users have started to pinch their pennies in the last twelve months. They are focused on needs rather than wants. Discretionary spending is shrinking as inflation has eroded their purchasing power.
Luxury credit card issuers American Express and JPMorgan Chase have seen a boisterous uptick in spending. This trend is more pronounced among wealthier consumers. Wealthy consumers have continued to spend lavishly on premium experiences such as upscale dining and luxury travel. That is an indication that their economic strength is still holding up.
These are some of the key notes from Synchrony’s President and CEO, Brian Doubles, on the current state of consumers during a keynote speech on April 22. He said, “The consumer is alive and well, and the consumer is still in pretty good shape.” Spending habits are shifting, he conceded, but nevertheless consumers are spending plenty. He accepted that lower-income users are becoming more discerning with their money.
Our data paints a stark picture of what consumers are facing at the bottom end of the income spectrum. They are not only slashing their budgets but their transactions as well, focusing solely on essential transactions like rent. Just as inflation has wreaked havoc on all budgets, discretionary and big-ticket expenses are no longer options for those on the margins.
The broader dynamics of consumer spending go beyond Synchrony’s numbers. Alongside the impact of inflation on consumers, Bread CFO Perry Beberman pointed to increases in consumer spending on electronics, home furnishings, and auto parts. Citigroup reported a 5% decline in spending within its division that provides cards for retailers aimed at lower-income users. Citigroup’s proprietary branded credit cards, which mostly serve those with high credit scores, recorded a 3% uptick in spending.
Brian Foran, an analyst at Truist, succinctly summarized the situation: “It’s fair to say that the high end has held up better, and the low end has pulled back more.” This brief but powerful statement really captures the growing chasm between the haves and have nots of our consumer society.
The financial wellbeing landscape uncovers a painful truth — that more Americans are going into debt. Fewer Americans are paying off their credit cards in full each month. This share has increased to 11.1%, which is the highest it has been in 12 years. This staggering statistic should point to the financial unsustainability many households face.
As our country’s economy continues to change, the growing divide between affluent and working-class consumers signals a perilous ride to come. Even as luxury spending booms for the well-off, working-class families with less excess cash try to keep from falling into an economic abyss.
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