WILMINGTON, DE — The annual Money Trends study by WSFS Bank reveals that regional consumers are adapting their financial habits in response to the ongoing economic challenges of inflation and rising interest rates. The study shows that nearly four in 10 (38%) regional residents are spending more money than they did last year, while only 21% are saving more.
The study, which surveyed 1,043 consumers in the Greater Philadelphia and Delaware region aged between 18-55, found that half of the respondents are familiar with but have never used savings tools like certificates of deposit (50%), and high-yield money market accounts (51%). This suggests a potential opportunity for consumers to leverage higher interest rates to their advantage.
A Shift in Consumer Spending
Inflation and rising costs are the primary reasons why 72% of consumers are spending more. Other factors include emergency expenses such as repairs or medical bills (27%), paying off additional debt (23%), and increasing interest rates on credit cards and loans (23%).
The study also revealed that consumers are facing increased expenses for essential items, with spending on groceries up by 60%, transportation by 53%, utilities by 50%, and housing by 43% compared to last year.
“Continued economic headwinds have impacted many consumers, but there are adjustments you can make to help your money stretch further,” said Shari Kruzinski, Executive Vice President, Chief Consumer Banking Officer at WSFS Bank. She noted that some consumers are already making adjustments by reducing spending on restaurant visits, entertainment, and travel and vacations.
Changing Financial Behaviors
The current economic climate is causing regional consumers to revise their spending behaviors. Thirty-seven percent of consumers are cutting non-essential expenditures due to rising interest rates. Meanwhile, 30% of residents are reducing their credit card spending and debt, while an equal percentage are avoiding loans altogether.
Debit cards are being used more than last year by 38% of respondents, while 30% have increased their credit card usage, and a close 26% have reduced it. Among those using credit cards less, repayment of existing debt is the primary focus for 37% of them.
“Changing your spending habits can be difficult, but there are small things you can do that add up in a big way over time,” said Shelly Kavanagh, Senior Vice President, Director of Retail Delivery at WSFS Bank.
Gen Z Leading in Increased Spending
Despite the financial pullback by many consumers, Gen Z leads the way in increased spending, outpacing Millennials and Gen X. Gen Z attributes their increased spending to higher income and financial stability.
The Challenge of Saving
Saving has become more challenging this year for many in the region, with half of the residents saving less than they did the previous year. Of those saving more this year, 40% cited having specific savings goals as the reason why.
If they received an unexpected $10,000 to save or invest for a year, 34% of regional respondents said they would place it in a basic savings account, while 30% would deposit some or all of it in a checking account.
“Rising interest rates have certainly made it more difficult to save, but the good news is it creates the opportunity to earn more on your savings,” said Kruzinski. “These savings tools tend to offer a higher interest rate than standard savings accounts and provide a safe way to earn interest that can really add up in this challenging economy.”