It’s often hard to see the extent of the growing gap between the haves and the have-nots in America. Numbers sometimes tell the tale, but in real-life the struggle that many families endure is often blurred by keeping up appearances.
This holiday season it may be set in sharp relief, however, with many families too strapped to splurge.
The industry’s own National Retail Federation predicts a 4.1 percent increase in sales this holiday season. Others are less optimistic: They say the wealthiest Americans will be driving most of the spending, masking how difficult it is for many people to put presents under the tree and a holiday feast on the table.
Amid stagnant wages and rising costs for food and apparel, only top earners have the money for much holiday cheer. For others, holiday shopping means a months-long marathon of preparation and skimping, scouring stores and the Internet for sales, and even putting off other bills.
“In our family we’ve cut back on buying for the extended family quite a bit because it is so expensive,” said Michigan mom Dawn Benmark. “The economy may be getting better but my paycheck is not getting any bigger.”
Tale of two economies
It’s really a tale of two economies, said Steven Barr, U.S. retail and consumer practice leader at accounting firm PricewaterhouseCoopers.
“They can say we’ve created 200,000 jobs... but creating 200,000 Wal-Mart jobs is not the same as taking away 150,000 shop worker jobs.”
According to PricewaterhouseCoopers, the average American family plans to spend $684 this holiday season, 7 percent less than last year. But there is a sharp divide within that figure. Two-thirds of households that shop for the holidays earn less than $50,000, and they plan to spend a mere $377. The remaining third, those making $50,000 and up, expect to spend an average of $978.
Online, shoppers are already hunting. Visits to the Black Friday prediction pages on DealNews.com are up 287 percent over last year, spokesman Mark LoCastro said. “That seems to imply that shoppers care more about Black Friday at an earlier point in the year,” he said via email. Merchants have recognized this, with some even offering Black Friday-style discounts as early as Halloween weekend.
With consumers shopping earlier, stores are opening earlier. Retailers including Macy’s, Kohl’s, Sears and Kmart have announced plans to kick off Black Friday at on Thanksgiving Day.
Squirreling Away Money for Months
This is a problem for Benmark. With a part-time job as a banquet server at a private club, the mom of three expects to work on Thanksgiving, so early openings mean limited-stock doorbusters will be sold out before she can get to stores.
“There’s been a couple of Christmases where Black Friday is the only way I put Christmas under the tree,” she said.
This year, Benmark has been squirreling away money for months, earning extra income any way she can: selling handmade hair bows and other crafts, decorating wedding cakes and buying craft supplies and items at outlets she resells online.
Benmark said there were more hours available at the club this year, and her craft and cake business was picking up, but that extra money came at a high personal cost. “I’m working more because I feel like I have to,” she said. “There’s literally nights where I’ll stay up all night long… I work for every single cent that I earn and sometimes that means not sleeping for two or three days.”
Benmark’s boyfriend, who lives with the family, tries to help out financially, she said, but he has been out of work since the auto-parts factory where he worked shut down in May.
“They can say we’ve created 200,000 jobs... but creating 200,000 Wal-Mart jobs is not the same as taking away 150,000 shop worker jobs,” she said.
In a consumer survey, management consultancy Accenture found that just-below-median income households, those making roughly between $35,000 and $50,000 a year, seem to be hurting the worst. Fewer than 20 percent of respondents said they plan to spend more this holiday season, the lowest percentage of any income bracket. And even some of those who are spending more freely might not have the money to spare. Accenture found that 8 percent of respondents in this group plan to postpone other bills to fund their holiday spending, up from 2 percent last year.
“It’s actually consistent with how we’ve seen retail performance over the past six years, where the high end has done pretty well, the value end has done pretty well and the ones in the middle have struggled,” said Chris Donnelly, Accenture Strategy managing director for retail.
In a recent survey of bank risk managers conducted by the Professional Risk Managers’ International Association for FICO, almost two-thirds said they were worried about growing income inequality threatening the stability of the financial system.
Although the recession did prompt Americans to shed debt, Andrew Jennings, chief analytics officer and head of FICO Labs, said this took place unevenly, leaving some heavily indebted households even worse off.
People with high FICO scores have less outstanding debt today, but Jennings says those with mid-range scores between 580 and 700 on an 850-point scale are still carrying as much debt — around $25,000, on average — as they were in 2005, and they incur significant costs to service that decade-old debt.
Sluggish growth, widening income gap
“Against that backdrop we’ve got sluggish growth and a widening gap in the distribution of wealth,” he said. “The fact that that group didn’t deleverage in the first place… they’re kind of stuck.”
“This year we’re looking at spending less than we did last year."
Rachel Breeding knows this first-hand. The ophthalmological assistant said her family finally paid off the credit card debt they incurred in 2010 when her husband lost his job. Although she was working part-time and he remained unemployed for only a few months before landing work as a hardware store general manager, it still took four years to pay down the balance.
“This year we’re looking at spending less than we did last year,” she said of her holiday shopping plans. “Among the four of us, at the most, $500.”
Even with a combined income roughly on par with the national median, the Tennessee mother of two said her family’s finances were crimped this year by her husband’s heart surgery. A $6,000 deductible on their health insurance plus several thousand in co-insurance they still owe the hospital ate up a significant chunk of their budget. Short-term disability reduced her husband’s income for a number of weeks.
Breeding and her husband have gone without raises in recent years, something she said she hopes will change next year. Even if their income grows, though, she said they’ve learned some hard lessons since the recession and won’t spend more on a regular basis.
Instead, they plan to funnel the extra money towards their outstanding medical bills and rebuilding the 401(k) her husband had to draw down when he lost his job. “We had to make our house payment,” she said.
Even most of the families in the top 20 percent of the income spectrum don’t think of themselves as rich, and are reluctant to spend, analysts say.
“They still see themselves as very middle class,” said Pam Danziger, president of Unity Marketing, which focuses on affluent consumers. These households have high incomes, but haven’t accrued enough assets to have high net worth. The relative impermanence of their financial stability makes them insecure and puts a damper on their spending.
“It is a real eye opener,” she said. “They may not feel it, but they do have discretionary money, and they’re the only ones that do in this economy… They don’t feel empowered financially.”