Affluent U.S. consumers pushed the pause button on their spending over the past two years as the deadly COVID-19 pandemic upended everyday life, but they’re poised to unleash $257 billion in pent-up spending now.
At least that’s the informed estimation of Visa’s chief economist, Wayne Best, who discussed his prediction Monday at the American Banker media outlet’s Payments Forum, a conference that runs through Wednesday in Phoenix.
Card behemoth Visa regularly issues a U.S. spending momentum index report and recently it has begun taking a closer look at an affluent slice of its activity for households earning more than $100,000. That group has an outsized impact on U.S. consumer spending because it made up only about 27% of the U.S. population in 2020, but accounted for 47% of expenditures, Best explained. "That’s critical for payments,” he said.
The average person in that group is 48 years old and earns about $185,000 annually, before taxes, and spends about $110,000, with significant portions directed to their homes and travel, he said.
At the moment, their spending for just about everything is picking up, Best said. “The affluent spending levels for this country in the last month’s worth of data are all growing,” moreso than those of the non-affluent, he said.
While that affluent group accounted for an 84% share of consumer credit sales volume growth in 2019, it made up just 68% of growth in 2021, according to slides that Best presented at the conference. He asserted these affluent individuals have yet to make up for the hundreds of billions of dollars of increased spending they would normally have pursued since February 2020, just before the pandemic began. “That pent-up demand is sizable,” he said.
In particular, he believes those consumers are eager to start traveling again and will double up on their trips to regain missed opportunities. While their spending for home furnishings and groceries climbed between 2019 and 2020, their expenditures overall dropped, specifically declining for entertainment, clothing, dining out and, most of all, transportation and travel, which fell more than 60%, Visa’s research estimated.
The affluent are also primed to start spending more because their net worth has increased at a faster rate since the beginning of last year than those U.S. households that earn less and they've saved more as consumption fell during the pandemic, Visa’s data showed. That’s despite their income growing at a slower rate than the lowest-income earners, Best said.
The only potential deterrent to their increased spending is the possibility of another COVID-19 spike, which the Biden administration warned could occur this fall. Visa data shows the consumer confidence of the affluent cohort declines when COVID cases mount, Best said.
They “have a greater sensitivity to the virus and so if we see case counts rising, with another potential wave that would occur with other variants, they’re also the ones likely to pull back (on spending) just a little faster and a little bit deeper than the non-affluent,” he said.