Living paycheck to paycheck a reality for nearly two-thirds of consumers

Purchasing a vehicle is the second-largest transaction most Americans make in their lifetime, next to buying a home. For an increasing number of American families, affordability is becoming a major issue once again. According to findings from the Reality Check: Paycheck-To-Paycheck series by LendingClub and PYMNTS.com, 64% of consumers report living paycheck to paycheck. 

The data reveals that for those earning under $50k per year, 77% are living paycheck to paycheck while earners between $50k and $100k are slightly less likely to live paycheck to paycheck, at a rate of 66.5%. Even for those earning in excess of $100k annually, nearly half – 48.3% – claim to live paycheck to paycheck. 

That’s an uptick from mid-2021 for all three segments. For high-income and mid-income earners, the increases were both more than 10% in just an eight-month stretch.

However, it’s not necessarily an indication of financial woes, and not all who live paycheck to paycheck struggle to pay their bills. Many of the respondents who identified as living paycheck to paycheck did not struggle with making their payments.

The report measured who would be able to handle an emergency expense of $400. Of the lower income group, 52% say they wouldn’t be able to handle it while the middle-income segment was slightly better with 38% saying they would struggle with such an emergency expense. Even among the higher income bracket, 23% say that a $400 expense would be problematic.

Impacted by inflation

An obscenely high inflation rate has exacerbated the problem of affordability in the United States, and global uncertainty is impacting inflation yet again by driving prices of goods, services, and transportation up. January’s inflation rate of 7.5% could soar to near or beyond 8% in February 2022 data to be released later this week. Obviously, as the costs of products and services go up, it adds pressure on those without expendable income to make ends meet.

It’s reasonable to expect that affordability issues will be even more prevalent in the coming months. The cost of fuel alone has increased by around $.30 per gallon in the past week and the national average for regular gasoline in the past year has risen by more than a dollar, from $2.745 per gallon to $3.837 per gallon. The current average price for regular gas in California exceeds $5 dollars per gallon.

Effects at the dealership level

It’s a stark reality for dealerships that customers coming through the doors will be facing affordability issues, even before staring down dealer markups over MSRP. Where a $400 emergency expense can disrupt a person’s financial situation, looking at a car payment higher than expected or a surprise repair bill in the service department could be stressful. 

The current financial climate is clearly not the dealership’s fault, but it pays to be cognizant of the issue when interacting with consumers. For car shoppers, salespeople should ensure they’re getting a clear picture of the customer’s financial situation so they can properly assist with finding the right vehicle and fitting the payments into their budget. For service departments, knowing the available options for credit on repairs and maintenance as well as suggesting items based on priority could assist those struggling financially, helping prevent declined services.

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