- Key insights: Consumer spending is expected to be solid this holiday season as gift purchases come earlier in the year.
- What’s at stake: Tariffs and inflation are pressuring consumers’ wallets, especially lower-income consumers.
- Forward look: Some financial institutions are concerned that their consumers will overextend on discretionary spending.
‘Tis the season to spend money, and consumers are doing just that, despite pressures from tariffs and inflation.
Overall, the financial health of consumers that bank with Bank of America “looks solid,” said David Tinsley, senior economist at the Bank of America Institute.
“When you look at measures like the degree to which people are utilizing their credit cards relative to limits, there appears to be little stress relative to 2019 levels,” Tinsley said. “When we look at the dollars – the cash in people’s deposit savings and checking accounts – we continue to see raised savings relative to 2019 levels. The financial position of households also suggests that they can do fairly well this holiday season.”
Consumers have been spreading their holiday spending out even further this year, according to the Bank of America Institute’s Holiday Spending report. More than half – 52% – of consumers surveyed said they purchased gifts before October: 35% of those said it was to avoid holiday stress, 27% said it was due to tariffs increasing prices, and 21% it was because they were worried about product availability or shipping delays.
Mastercard reported a similar trend in its own survey on consumer spending. More than a quarter of shoppers are starting their shopping as much as three months early, and 12% said they started shopping for the holidays six months in advance.
But spending trends this year change depending on consumers’ economic situation, with wealthy consumers accounting for a large portion of spending, Daniela Hawkins, a partner at Capco, told American Banker.
“Those that are on the lower end of the economic spectrum are spending less,” Hawkins said.
Consumers are feeling strained this year, according to data from the Bank of America Institute. Sixty-two percent of consumers surveyed said they expected to feel financial strain around holiday expenses due to the current economy, and 58% said they felt that holiday gifts were more expensive this year. Inflation was the number one reason for rising prices at 62%, followed by tariffs at 58% and companies prioritizing profit at 33%.
That 62% figure, while high, is actually consistent with last year and lower than it was in 2023, said Mary Hines Droesch, head of consumer and small-business products and analytics at Bank of America.
“A lot of the factors are the same,” she said.
Municipal Credit Union expects its members to spend through the holiday season, even though there has been a lot of uncertainty this year, Mike Savino, chief lending officer, Municipal Credit Union, told American Banker.
“The outlook people are going to spend. They want to enjoy the holidays. They want to provide a good experience for their families,” Savino said.
But MCU is concerned about members overextending themselves.
“It is a concern. We’ve seen it the last couple of years, especially post-COVID after the influx of cash and additional aid that has disappeared, that come November, December, we start to see a lot of folks that are making those choices over necessities versus holidays,” Savino said.
“At MCU we’re really focused on trying to get folks through this holiday season and have them come out financially well heading into next year, so that strain is not there, and making those positive choices, saving, driving positive spending habits and hopefully coming out without debt,” Savino said.