Rollins Professor says Floridians will factor inflation into their holiday budget
The Florida Retail Federation expects consumers in the state to spend an average of $875 on gifts, decorations and other items this holiday shopping season.
Anca Voicu is a Professor of economics and head of Rollins College’s Women in Finance Program.
She said despite inflation and high housing costs, consumers will be spending more this year compared to last.
Listen to the full conversation in the player above.
Anca Voicu: I don't have the exact data for Florida, but according to a survey by Deloitte, (nationally) consumers spent on average $1,387 in 2020. This number one went up in 2021 to $1,463. It was flat in 2022, and now in 2023, we are expected to spend $1,652. So this is about a14% increase on a yearly basis, which is, I mean might be surprising, given the high inflation rates that we have experienced over the past year. But it's very interesting that despite inflation consumers, average planned holiday expenditure will be surpassing the pre pandemic levels for the first time. And there seem to be three factors responsible for this. One is the increased consumer participation rate, which this year is 95% versus 92% in 2022, and 88% in 2021. Now, about 72% of the consumers are factoring in inflation, which means that they know it's there, they continue to expect inflation to be there. And so because they are expecting higher prices, they plan on spending more. Now, this is very different than if there has not been an expectation of inflation there. If consumers are taken by surprise, then of course, they would tend to cut back on spending. But because they know inflation is there, they have already planned to spend more, and they seem to be fine with that. Also, there is strong spending expected from consumers in the middle income group, those with incomes between $50k and $99k. They are expected to increase their spending by 26%. And then the group of $200k+ is expected to spend 22% more this year. So surprisingly enough, consumers aren't discouraged by inflation, as one might expect or might have expected instead, probably after that pandemic, when they had to cut back on spending. Now they feel like it's time to splurge.
Talia Blake: So speaking of the pandemic, since the end of the pandemic, we saw more people relying on their credit cards. Where are we with credit card debt now?
Anca Voicu: The states that have the highest credit card spending seem to be New York, the District of Columbia, Nevada, and Texas. So why exactly are we number four? Or number five rather, it's a great question. I am not sure that I have a straight cut answer to that question. It could be the fact that right after the pandemic, savings have started to fall. And with inflation, again I'm bringing up inflation, with inflation, people were spending more particularly on goods and services and housing prices. So, this could have and certainly has contributed to credit card debt. So what I find is that the average consumer in Florida holds about $4,000 in credit card debt.
Talia Blake: It sounds like despite high credit card debt and where we are with inflation, consumer spending is still increasing. And Adobe Analytics reports that online shopping financed with buy now pay later services kind of like AfterPay or Klarna hit $940 million this past Cyber Monday, which is an all time high, why are we seeing such an increase in the use of these services?
Anca Voicu: First of all, consumers given their credit card data (and) given their higher expenses during inflationary times tend to purchase more, particularly the inflation weary consumers, tend to purchase more during periods when there are promotional times. So, it is not surprising that during Black Friday and Cyber Monday, spending has gone up so much. This is not at all surprising. Now, why the services have picked up so much and the spending has increased so much? In addition to the inflation weary consumer who wants to spend during promotional times, the Klarna, for instance, and Affirm, and there are so many other vehicles that allow consumers to to plan their spending better and not spend one time a larger amount of money. It really helps them plan better their expenses. Yes, it is true that eventually they will have to pay the entire amount. But having get split in installments, probably helps.
Talia Blake: With Florida being in the top five when it comes to credit card debt. Will we see that continue during this holiday shopping season, more Floridians relying on credit payments?
Anca Voicu: That's a great question. And I do not have a straight cut answer to the question. It remains to be seen, we will have to see the data after the holidays. But it certainly is a possibility. Now, the Deloitte report and survey states 57% of consumers are making modifications to stay within a fixed budget versus 66% in 2022. Again, a very interesting number given that inflation has been there over the past year. We had 6%, that's the average at the level of the United States in January. Now of course it has gone down. We are at about 3.2% inflation rate. This is the October inflation rate in Florida.
Talia Blake: So speaking of staying within a fixed budget, are there ways that central Floridians can stretch their dollar or get the most bang for their buck this holiday season?
Anca Voicu: That buy now pay later (services) and promotional periods. These promotional periods seem to matter the most to our consumers. So based on data reported by various agencies, it seems like that is the time when consumers are willing to spend more and engage in retail spending. Now, this holiday season, more than 25% of consumers seem to be prioritizing nongift purchases by restocking holiday decorations, furnishings, and nongift apparel. So probably this hasn't been done since the pandemic. Now people kind of feel the need to get back into that holiday mode three years later. 75% of consumers are also expected to self-gift this year, which is a higher percentage than we saw in years past. And what is interesting also this year is that, according to the Deloitte Survey, we are approaching 2019 spending levels.
Talia Blake: The holidays continue to be a major season for retailers, but if wages in Florida continue to fall behind affordable living costs, could that change in the future?
Anca Voicu: That certainly is a possibility. Although, we should never ignore consumer preferences and human behavior. John Maynard Keynes, a famous British economist, used to call this animal spirits. We are guided by animal spirits. So we are not necessarily those very rational economic agents who are supposed to make decisions based on full information. Unfortunately, we are not that. We always have to factor in this animal spirits. We are human beings. And we have to take into consideration how humans actually behave and not how they should behave. So we can expect to see both behaviors. Some people will hold off from spending and others will continue to spend. But what is interesting is that 34% of consumers plan to use social media for holiday shopping. This is the same number, the same percentage actually, as in 2022. We had 34% in 2022, who use social media for holiday shopping. Then there was 20% in 2021, 26% or less in 2020 and 23% in 2019. So notice that this number, this percentage has been going up. I guess that the pandemic played an important role there because there has been a time when we were getting out less and so people started to shop from home social media played an important role at that point in time.
Talia Blake: Do you think that the rise in social media holiday shopping could also be attributed to during the pandemic when people were at home TikTok became such a huge thing and then about a year or two or so ago they opened up the TikTok shop and now influencers could straight link the product there using right there in the video and you can buy right there from the app. Do you think the rise in that has also attributed to this?
Anca Voicu: Oh, absolutely. It has a very important role. Absolutely. It makes a lot of sense. So in terms of savings that have fallen since the pandemic, I just want to mention that about 17% of the respondents say that they have to repay student loans, which might cut down their spending. So while we do expect holiday shopping to go up this year, there is a category of consumers who are saying or stating that they have to cut down on their spending, given the fact that they have to repay student loan.
Talia Blake: And student loan repayments just restarted back in October. So that just happened right before the holiday shopping season started.
Anca Voicu: Absolutely. So certainly that is impacting their spending decision.