'Inflation is like a regressive tax,' economist says — only one group can 'easily afford' holiday spending this year

Only one cohort of surveyed shoppers said they have enough financial runway to spend cash this holiday season without rolling into debt — and even so, many in that group anticipate struggling.

More than half, or 52%, of shoppers with incomes of $100,000 or more said they can “easily afford” holiday expenses in 2024, according to Morning Consult, a survey research firm.

That’s the highest share compared with other income groups.

Of those who earn $50,000 to $99,900, about 33% said they can afford holiday spending. Meanwhile, 18% of respondents who earn below $50,000 annually said they can sustain the costs, the report found.

More from Personal Finance:
Don’t wait too long for year-end Roth IRA conversions
About 28% of credit card users are still paying off last year’s holiday debt
Buying a home is ‘a way to increase your net worth over time,’ top advisor says

The survey polled 2,201 adults in the U.S. between August and September.

This lack of confidence stems from households still struggling with inflation, experts say.

“Inflation is like a regressive tax,” said Sofia Baig, economist at Morning Consult. “It hurts lower-income people more than higher-income people because it takes out a larger chunk of their wallet.”

Shoppers who plan to take on debt this holiday season need to keep in mind that credit card balances can be very sticky. About 28% of 2023 holiday shoppers are still paying off debt they incurred almost a year ago, according to NerdWallet, which polled 2,079 adults in September.

“Credit cards charge really high interest rates,” said Sara Rathner, a credit card expert at NerdWallet.

The average annual percentage rate for credit cards is around 20.50%, down from a record high of 20.79% in August, according to Bankrate.com. To compare, the average APR for retail credit cards is 30.45%, a high, Bankrate found.

“If you’re only making minimum payments on that debt, it is very possible to remain in credit card debt for a long time,” she said.

As the world reopened from pandemic-era lockdowns, there was an “increased income equality” because the labor market was favorable for workers and people still had Covid-19 stimulus payments saved, said Baig.

U.S. households received more than 476 million payments totaling $814 billion in financial relief, according to government data.

But as inflation grew in a rapid spiral in recent years, excess savings from the pandemic quickly began to deplete, she said.

High-income households were less affected by inflation, while lower-income households paid more out of their pockets for goods and services, Baig said.

“Higher-income consumers are not nearly as price sensitive,” said Stacy Francis, president and CEO of Francis Financial, a wealth management, financial planning and divorce financial planning firm in New York City.

“They’re not nearly as budget conscious as people in lower-wage-earning brackets,” said Francis, a member of CNBC’s Financial Advisor Council.

Higher-income people are “more buffered from the pains of inflation” as they have more “wiggle room in their budget to save and to spend,” Baig said.

About 68% of respondents who earn $100,000 or more said they can cover three months or more of basic expenses without income, Morning Consult found in a separate report that polled 2,025 adults in October. That is an increase from 65% in 2023.

Their high savings balances on top of high income gives them the strength to spend on retail purchases and travel this holiday season, the report found.

“The same thing can’t be said for low- and middle-income consumers,” said Baig.

Less than half, or 47%, of respondents with incomes between $50,000 and $99,000 said they have enough savings to cover three months of expenses, and the share is only 22% for those who earn less than $50,000 annually.