Four in ten use credit to cover essentials as consumer spending grows

Inflation and rising bills mean households are spending 12% more on essentials than they were a year ago, with almost four in 10 people having to use credit cards to cover these costs, research by Nationwide Building Society data shows.

The monthly Spending Report analysed around 208 million debit card, credit card and Direct Debit transactions, with c£7.72 billion spent in February. Overall consumer spending and transactions both grew 10 per cent year-on-year.

All bar one essential spending category – car finance – saw annual growth, while only four out of the 15 non-essential spending categories recorded a year-on-year reduction, including dating, subscription services and home improvements.

A separate Nationwide poll has highlighted that close to two thirds (63%) are worried about the current state of their personal finances and ability to cover essential costs. While this figure is down seven per cent on last month (70%), close to four in ten (38%) people have had to use credit cards to pay for essential items over the last six months to tide them over until their next payday or benefits payment.

According to the research, the main areas credit cards are being used for are food and drink in supermarkets (29%), eating and drinking out (14%), fuel/electric car charging (13%), utility costs (12%) and holidays and travel (11%).

Notable demographical differences include:

• Age: According to the poll of more than 2,000 people across the UK, more than half (57%) of those aged 18-34 have needed to use their credit card for essential bills versus 46 per cent of those aged 35-44, 38 cent of those aged 45-54 and just 21 per cent of people aged 55 and above.
• Gender: 42 per cent of woman have done this compared to 35 per cent of men.
• Salary: 40 per cent of those earning up to £25,000 have turned to credit to purchase essentials, rising to 44 per cent of those earning between £45,001-£55,000.
• Regions: People living in London are significantly more likely to need to use credit to cover essential costs (45%), along with those in the West Midlands (45%) and North East (44%) with those the South West least likely (25%), along with the South East (34%) and East of England (35%).

The amount spent during February reached nearly £3.97 billion – a 12 per cent increase on February 2022 as inflation and rising bills means more household income is being accounted for by essentials. The volume of essential transactions is also on the rise, with c107m essential transactions in February – up 11 per cent on 12 months previous.

• Utility bills: Spending on utility bills, such as energy, continues to be much higher than last year as members spent 34 per cent more in February.
• Supermarkets: A 14 per cent year-on-year increase in supermarket spend mirrors the 14 per cent rise in transactions. This shows that despite food and drink prices rising, people are also clearly making more trips.
• Credit card repayments: February saw 19 per cent annual growth in the amount spent on credit card repayments as people turn to spending on credit to finance both essential and non-essential purchases.
• Childcare: With the cost of childcare continuing to rise, it’s perhaps unsurprising that spending on childcare and education was up six per cent year-on-year.

The majority of non-essential categories saw annual spending growth. At £2.75 billion, overall non-essential spending was up nine per cent on last year, while transactions (c93.1m) were up by the same amount (9%).

• Holidays: Spending on holidays and travel continues to grow. Holiday (+19%) and airline travel spend (+34%) are higher than in February 2022 as people continue to take trips now or book something for later in the year.
• Eating and drinking out: Members continue to enjoy socialising with family and friends as the amount spent and number of transactions made on eating and drinking out are both up 11 per cent on last year.
• Subscriptions: Spending on subscriptions, such as Netflix, Amazon Prime and magazines, continues to be lower than the previous year. In February, spend was down three per cent year-on-year and 20 per cent month-on-month.

Nationwide’s research backs up the data, with nearly a quarter (23%) of people having already reduced or cancelled TV subscriptions, with a further 14 per cent considering doing so. Nearly one in five (19%) have already reduced or cancelled their broadband (+12% considering it), while a similar number (20%) have done the same thing with their mobile phone (+11% considering it).

Mark Nalder, Payments Strategy & Performance Director at Nationwide Building Society, said “We’re continuing to see annual growth in consumer spending and, while that can partly be put down to rising costs and inflation, we’re also recording year-on-year growth in the level of transactions made across both essential and non-essential spending. This shows that despite rising costs, households are clearly looking to strike the balance between being fiscally responsible and still being able to spend money on themselves.”

“However, our research shows that while the number of people worried about their finances has fallen slightly, there are people relying on credit as a way of bridging the gap for essential bills. We’d urge anyone struggling to talk to their bank or building society as early as possible for support. We have a dedicated cost-of-living hotline to do just that.”