Improvements in Household Finances Could Provide a Short-Term Buffer for Consumers if Economic Conditions Worsen

Heightened economic uncertainty, largely caused by new wide-sweeping tariffs, has caused certain “soft” economic data such as consumer sentiment, to decline, as consumers become more worried about the outlook for the U.S. economy. However, up until this point, the “hard” economic data, including consumer spending which we’re continuing to watch closely, still paints a picture of a relatively strong economy. 

Along with other economic indicators, consumer finances also appear to be relatively strong and have even improved in some areas in recent months. Continued strength in consumer finances hinges largely on the labor market, which faces headwinds due to increased costs associated with tariffs. 

A greater share of consumers report having money left over to save each month

During the COVID-19 pandemic, consumers ramped up their savings (sometimes referred to as “excess savings”) mainly due to a combination of spending less during lockdowns and receiving government assistance via stimulus checks. As lockdowns eased, surging inflation eroded purchasing power, and economic activity rebounded with a vengeance, consumers both put away less each month and spent down much of their savings stock.

Through 2024, consumers reduced their savings activity even more; however, that trend began to reverse in recent months. The aggregate savings rate, as reported by the Bureau of Economic Analysis, ticked up in 2025 from its recent low in December 2024. At the same time, Morning Consult data shows a larger share of adults at all income levels report having money left over to save each month.

Adults at all income levels have slightly increased their savings stock

In addition to a larger share of adults reporting more “flow” of savings in recent months, slightly more consumers report having enough savings to cover three months of basic expenses without income. This is the case for all income levels, although gains for high-income households – those making $100k or more annually – have been the largest since their last low in 2023 (an increase of nearly 10 percentage points ). At the same time, the share who said they have savings that would only cover less than a month’s worth of expenses (essentially the share living “paycheck to paycheck”) has decreased through the first few months of 2025 across all income cohorts. 

Although saving stockpiles are down from their pandemic-era highs, more consumers reporting they can cover at least a few months of expenses without income is a good sign for the economy's resilience going forward, especially if tariff policies or economic uncertainty negatively impact the labor market.

More consumers are paying off their credit card debt

The share of respondents reporting holding some amount of credit card debt has remained relatively steady since Morning Consult began tracking. However, among those who say they hold some credit card debt, consumers report shorter durations since they last paid off their credit card balances in full, suggesting that some consumers have prioritized paying down their debts.

Since its peak last summer, the share of credit card debt holders who said it had been a year or longer since they’d fully paid off their balances has decreased steadily, falling by a total of seven percentage points over this period. Although interest rates have come down slightly from their peak, rates continue to be elevated near recent highs, including for credit cards, making it more expensive for consumers to hold credit card debt. A reversal of the previous trend, where consumers were holding onto their debt for longer without paying it off, is a good sign for these consumers' future purchasing power.

That being said, there are still downside risks on the debt side. The share of consumers who are delinquent on their credit card bills by more than 90 days is higher than it's been in over a decade. Delinquency is slightly different than having an unpaid balance: to be delinquent means that a required payment on the bill has been missed (after a specified grace period). Increasing delinquencies suggest that a small pocket of particularly vulnerable debt-saddled consumers is growing.

More consumers are covering emergency expenses with cash without having to cut back on other spending

Morning Consult surveys 10,000 adults every quarter on how they would pay for a hypothetical $400 emergency expense, as well as what (if any) emergency expenses they incurred in the previous month and how they paid for them. Consumers generally pay for their actual emergency expenses with cash or equivalents (including payments made in cash, debit card, or credit cards paid off at the next statement) more than they say they would when faced with a $400 emergency expense. 

Cash payment rates are impacted by seasonal effects, with Q2 usually being a quarter with higher cash payment rates, in part due to tax refunds. Consumers reported relatively higher cash payment rates this year, mostly in line with the previous two years, although a slightly lower share (within the margin of error) paid for their actual emergency expenses in the $200-$600 range (selected to be roughly comparable with the $400 threshold used for the hypothetical expense question) with cash in 2025. Furthermore, cash payment rates for actual expenses have remained relatively steady and well above previous lows over the past year, suggesting most consumers have been able to financially handle their emergency expenses.

For hypothetical expenses, consumers were more pessimistic this Q2 compared with last year’s by 4 percentage points, more than the differences in the actual expense cash payment rate, perhaps due to the diminishing economic outlook impacting other “soft data.”

Digging deeper into how consumers are paying for their actual emergency expenses with cash, a larger share of cash payments are coming from using physical cash or a debit card, while a decreasing share of consumers are reporting cutting back on other spending in order to cover their emergency expenses with cash. This comes off of a series high for the share of consumers cutting back spending in order to make their emergency payments in the last quarter of 2024. A higher share paying with cash or debit without having to pull back on other spending is yet another sign that consumer finances have improved somewhat through the first few months of 2025.

Continued improvement in household finances hinges on the labor market and the strength of the overall economy

While several different Morning Consult surveys point to improvements in consumer finances in the past few months, as always, the future outlook depends heavily on continued economic growth and prosperity. Gloomy sentiment about the economy isn’t just based on partisanship or reactionary consumers; signs of economic stress are bubbling under the surface. For example, declining Q1 GDP was driven largely by companies pulling forward their inventories ahead of tariffs, showing that tariff policy has already impacted companies’ behaviors. Furthermore, ports and trucking data suggest early slowing due to tariff implementation, which could dampen future economic data.

Consumer financial health relies largely on the labor market – if consumers bring in income from work, they’re more likely to be financially healthy and therefore able to keep the strong economy going. For now, the labor market continues to be relatively robust, especially for people who currently have a job, as unemployment remains near historic lows. However, the labor market has shown signs of cooling, as hiring activity has slowed, and new jobs are more challenging to come by for job seekers. Although more consumers report they could cover several months of expenses without income, if slower hiring turns into increased layoffs, consumers would need to draw down these funds. In other words, consumers’ financial health looks stable in the near term, but looking farther out, much of the outlook hinges on how the job market continues to support household incomes. If tariff policy remains in place the way it currently is, especially with Chinese goods subject to a 145% tax, we could start to see more cracks form in consumer finances as businesses struggle to keep up with costs and need to reduce payrolls.