While much of the blog’s focus is the impact the current pandemic is having on the travel industry, it goes without saying that a lot of industries are suffering at the moment.
Chase has published some data about how credit card spending has changed in recent weeks. This not only impacts the credit card industry as such, but also reflects how much less money is being spent in the economy otherwise.
First a bit about how this study was conducted — Chase took an anonymous sample of eight million families across all 50 states who have been active users of Chase credit cards since January 2018. They then paired credit card data with checking account data to determine income levels and industry of employment.
Below are some of the key findings of this study.
In this post:
Chase credit card spending has dropped 40%
Average household credit card spending has fallen by 40% year over year in recent weeks. The way this has played out, the 40% drop came in the second half of March, and then stabilized at that level for the first two weeks of April.
Average weekly credit card spending in April 2020 was about $300 lower than in April 2019.
Non-essential credit card spending dropped by 50%
Equally interesting is the categories in which spending has changed. When the pandemic started, spending in essential categories increased by 20% around early March, before returning to pre-pandemic levels.
Meanwhile spending in non-essential categories declined by 50% and has remained there, accounting for nearly all of the total decline in spending.
Given the stay at home orders, why were most households still spending an average of $250 per week on non-essential categories in April? The study concludes the following:
- There was variation in the degree of closures across geographies, and also variation in terms of what was deemed to be non-essential
- Households were able to switch some non-essential services from in-person to remote, like switching from movie theaters to streaming services, and switching from dining in restaurants to ordering take-out
- Spending categories do not map perfectly to each specific non-essential category
In a way what surprises me here is that essential spending hasn’t stayed higher than it was pre-pandemic. For example, I know we’re spending a lot more on groceries nowadays, as we’ve largely shifted from eating out and even ordering delivery, to just cooking at home.
Higher-income households had bigger drops in spending
This doesn’t come as a surprise, since higher income households have more disposable income, and therefore spend more on non-essential goods:
- For the bottom quarter of household incomes ($39,000 or less), weekly credit card spending decreased by $150, or 38%
- For the top quarter of household incomes ($92,000 or more), weekly credit card spending decreased by $400, or 46%
The study suggests that it’s surprising that there wasn’t a bigger drop among lower income households, given that:
- Lower income households disproportionately have jobs that are harder to perform at home, requiring more physical proximity
- Job losses were four times as high among workers in the bottom 25% of incomes than in the top 25% of incomes
- 35% of unemployment is among those with the lowest incomes
Unfortunately the sad reality is probably that those with the lowest incomes can’t cut spending as much, and will end up going into credit card debt to pay for essential purchases.
Chase has seen a 40% drop in spending towards the end of March and beginning of April, which is huge. The data I’ve seen about the industry on the whole suggests spending has decreased, but not quite to this extent.
It sure seems like Chase’s customer base is cutting back more on spending than with other credit card issuers. This could be because:
- Chase has lots of travel rewards cards
- Chase also has lots of premium cards, typically used by those with higher incomes, where they’re seeing the biggest drops in spending
Personally I know I’m putting a lot of spending on the Citi Double Cash® Card (review), which has no annual fee and offers an incredible amount of flexibility to earn cash back or rewards points. I think cards like this are more useful than ever before.
What do you make of this data from Chase?