How Student Loans and Rising Consumer Debt Are Set to Impact Holiday Spending

As store shelves fill with fall favorites, it’s hard to ignore the beginning of the U.S. winter holiday shopping season — and the uptick in American spending that typically goes with it. The frenzy from late September through the new year is a well-established critical time for retailers, which count on the “Golden Quarter” for a large chunk of their annual revenue.

However, consumers whose student loan payments and interest were deferred since March 2020 due to pandemic relief policies have now seen those pauses lifted — with interest accruals resuming as of Sept. 1 and the first student loan repayments due Oct. 1. Plus, many of these same shoppers (and their parents) have doubled down on consumer debt, contributing to record highs in credit card debt and car loans, particularly for younger consumers.

If retailers and brands hope to see a strong Q4 this year, they simply can't ignore the return of loan repayments and the potential impact on consumer spending this holiday period, as the relationship between student loan repayments and consumer habits is deeply intertwined.

The Effect of Student Loan Repayments on Consumer Holiday Spending

According to data from the New York Fed Consumer Credit Panel (CCP), student loan borrowers tend to spend less overall. It’s not difficult to understand that for such consumers a significant portion of monthly income is dedicated to loan repayments, which leaves less discretionary income for holiday shopping.

Unfortunately, their parents are also likely to take on additional debt associated with student college expenses with separate loan programs such as the Parent PLUS loan program further contributing to household debt and pressure on consumer discretionary spending. Student loan repayments will affect both current and future generations and even older consumers might find their discretionary spending reduced for the 2023 U.S. holiday shopping season.

Rising Household and Credit Card Debt Continue to Shrink Discretionary Spending

It’s not just student loans that will have American consumers strapped this holiday season. As with student loan repayments due, high levels of debt and high credit card interest rates (assessed interest was 22.16 percent in May 2023) make U.S. consumers more cautious when it comes to spending on nonessential items and gifting. Consumers will continue to prioritize necessary expenses (the needs) over discretionary purchases (the wants).

The impact of household debt on U.S. consumer holiday spending means retailers must develop strategies for American households. Taking cues from 2022, U.S. and even a few UK and U.S. spending forecasts for the 2023 holiday season (Deloitte, Kantar, Insider Intelligence), retailers can expect moderate increases (between 3.5 percent and 4.6 percent, per Deloitte’s September update) in holiday spending with consumers continuing to focus on value and deals while seeking out holiday gifting or entertainment goods that are fun, unique and functional. Consumers have shown they're willing to spend when the price is perceived as a good value, discounts are available, and the purchase is during popular sales events such as Amazon’s October Prime Day, Black Friday and Cyber Monday to tackle their holiday shopping lists and stretch their dollars.

Implications for US Holiday Shopping and Retailers

Retailers must continue to adapt their marketing strategies and product assortments to effectively capture consumers' attention and dollars during the marathon U.S. holiday shopping season. Here are a few key strategies they can employ:

1. Rethink marketing and promotions. Retailers should focus on value-driven marketing campaigns and special assortments, highlighting deals or discounts that appeal to cost-conscious shoppers with bundles or pack offerings tailored for holiday gifting or gathering. By offering unique festive assortments, competitive prices, unique promotions and incentives, retailers can encourage spending while considering consumers' financial concerns and constraints.
2. Embrace e-commerce and omnichannel experiences. Retailers (and their brands) need to incentivize browsing consumers to become purchasing consumers. With more consumers turning to online shopping, retailers must prioritize their e-commerce capabilities and consider how to drive e-commerce and brick-and-mortar together. User-friendly websites, seamless online purchasing experiences, and fast and reliable shipping, delivery or pick-up options can help retailers cater to the increasing demand for convenient, contactless shopping, especially among millennial and Gen Z consumers.
3. Enhance customer service and data analytics for personalization. Meeting product quality, delivery and customer service expectations can set retailers apart from their competitors in a competitive retail landscape during the holiday season. Personalization and investing in seasonal-specific training for all employees can help retailers deliver great service and leverage customer data to provide personalized recommendations to drive loyalty and repeat purchases.

By understanding the challenges faced by consumers, retailers can adapt their strategies to effectively capture their attention and dollars. Emphasizing value-driven marketing, embracing e-commerce and omnichannel experiences, and enhancing customer service and personalization are key steps that retailers can take to navigate the current economic landscape and stand out during the holiday shopping season.

Rae Marie Guimond is director, strategy and business development at PriceSpider, the market leader in brand commerce enablement solutions.