Inflation has caused a massive shift in consumer spending habits—here's a closer look at how

Four out of five consumers have had their spending habits impacted by inflation, according to a 2023 Consumer Spending Index. Over half of that 80% turned to discounts and promotions (57%) and sought lower-priced options (53%) to combat inflation.

TD Bank polled more than 1,000 Americans to gauge shifts in consumer spending behaviors and credit usage. As inflation continues to impact all Americans, respondents are prioritizing rewards and showing signs of high financial literacy – underscoring the importance of responsible financing during economic instability.

Consumer spending focused on necessities

With rising costs of living, respondents' spending focused on necessities. Groceries were the leading expense for 51% of respondents, with another 13% spending primarily on gas. Meanwhile, only 5% of consumers are spending the most on discretionary expenses like vacations, electronics, and high-end retail items. Thirty-nine percent of respondents have also cut their discretionary budget in response to rising costs of living, and 27% have had to dip into their savings to keep up.

More interest in 'no interest'

As interest rates continue to rise, consumers are looking for low and no interest solutions for their credit cards. The vast majority of respondents (89%) said they would be interested in a credit card with no interest, and 42% ranked low or no fees as the feature they most valued in their card benefits, with cash back coming in second at 34%. Nearly half (48%) of respondents selected no interest as the credit card feature they were most interested in, with customizable rewards coming in second at 25% and increased payment flexibility coming in third at 17%.

More than 40% of respondents (42%) also had experienced a situation in the past that negatively impacted their credit. Of this group, the leading cause for negative credit impact was incurring credit card debt (44%)—which ranked even higher than losing a job or source of income (32%) as a negative credit experience.

Strong financial literacy around credit

Eighty- three percent of consumers know the range of their credit score, and almost 50% know their exact score. Additionally, 3 out of 4 consumers can correctly identify the recommended credit utilization rate, showing high levels of financial literacy around credit scores.

Consumers are passing this credit-savviness down to their children. Respondents with teenage children said 75% of them teach the importance of building credit to their teen, and 70% are beginning to help them establish this credit at a young age.

Consumers might be leaving rewards on the table

Rewards are a key factor for many when choosing a credit card, with more than 81% of respondents owning a rewards card and 31% of respondents applying for cards specifically because of rewards features. Of rewards cards, cash back cards are the most popular, with 63% of respondents saying they hold a cash back card. However, the survey found that consumers are not utilizing their rewards options to their full extent.

Most consumers (53%) use debit cards or cash as their primary spending method, meaning they miss out on optimizing spend-based rewards like cash back.

Even though two-thirds of consumers redeem their credit card rewards multiple times a year, 16% have admitted to letting their rewards expire. Of that 16%, more than 4 in 10 consumers say they let their rewards expire because they simply forgot to redeem their points.

Demand for digital

The survey also found that respondents are leaning into digital banking and seeking easier and quicker ways to pay bills, spend money, and access support. More than 8 of 10 respondents (82%) prefer to pay their bills online or through an app. Digital banking has become so important to consumers, that more than half (55%) say they decide which card to get based on the digital experience provided.

Digital wallets are also rising in popularity, particularly among younger consumers. 72% of survey respondents set up a mobile wallet in 2023, and 82% of mobile wallet users are between the ages of 18-34 years old. The survey showed a 12% increase in the total mobile wallets set up in 2022 (60%) compared to 2023. Only 42% of consumers ages 45 years and older are concerned about cyber security and do not use a digital wallet because of this.

Methodology

This CARAVAN survey was conducted by Big Village among a sample of 1,005 U.S. adults ages 18+ that have a credit card. This survey was conducted from June 8-12, 2023.

This story was produced by TD Bank and reviewed and distributed by Stacker Media.