According to TD Bank’s 2023 Consumer Spending Index, four out of five consumers have had their spending habits impacted by inflation, with more than half turning to discounts and promotions (57%) and seeking lower-priced options (53%) to combat inflation.

The survey polled more than 1,000 people in the U.S. to gauge shifts in consumer spending behaviors and credit usage. According to the survey, as inflation continues to impact the U.S., respondents are prioritizing rewards and showing signs of high financial literacy, underscoring the importance of responsible financing during economic instability.

“Consumers are undoubtedly continuing to feel the impact of inflation and rising interest rates,” Chris Fred, head of credit cards and unsecured lending at TD Bank, said. “And it is not surprising that so many consumers are proactively doing their homework, speaking to financial professionals for pointed advice and seeking strategic ways to offset these rising costs, like identifying more available discounts or cost-effective alternatives.”

Consumer Spending Focused on Necessities

With rising costs of living, respondents’ spending is focused on necessities. Groceries were the leading expense for 51% of respondents, with another 13% spending primarily on gas. Meanwhile, only 5% of consumers are spending the most on discretionary expenses like vacations, electronics and high-end retail items. Thirty-nine percent of respondents have also cut their discretionary budget in response to rising costs of living, and 27% have had to dip into their savings to keep up.

“As costs rise, people need a little more flexibility,” Fred said. “We heard from consumers that they are looking for more breathing room.”

More Interest in No Interest

As interest rates continue to rise, consumers are looking for low and no interest solutions for their credit cards, according to the survey. The majority of respondents (89%) said they would be interested in a credit card with no interest, and 42% ranked low or no fees as the feature they most valued in their card benefits, with cash back coming in second at 34%. Nearly half (48%) of respondents selected no interest as the credit card feature they were most interested in, with customizable rewards coming in second at 25% and increased payment flexibility coming in third at 17%.

More than 40% of respondents (42%) also have experienced a situation in the past that negatively impacted their credit. Of this group, the leading cause for negative credit impact was incurring credit card debt (44%), which ranked even higher than losing a job or source of income (32%) as a negative credit experience.

Strong Financial Literacy Around Credit

Eighty three percent of consumers know the range of their credit score, and almost 50% know their exact score. Additionally, three out of four consumers can correctly identify the recommended credit utilization rate, showing high levels of financial literacy around credit scores, according to the survey.

Consumers are passing this credit-savviness down to their children. Respondents with teenage children said 75% of them teach the importance of building credit to their teen, and 70% are beginning to help them establish credit at a young age.

“Adding a teenager as an authorized user on a card is a great way to help them begin building a credit history early,” Fred said. “We’re seeing many parents start their teenaged kids on credit cards with low limits to start building healthy financial habits and a possible strong credit score young.”

Consumers Might Be Leaving Rewards on the Table

Rewards are a key factor for many when choosing a credit card, with more than 81% of respondents owning a rewards card and 31% of respondents applying for cards specifically because of their rewards features. Of rewards cards, cash back cards are the most popular, with 63% of respondents saying they hold a cash back card. However, the survey found that consumers are not utilizing their rewards options to their full extent.

Most consumers (53%) use debit cards or cash as their primary spending method, meaning they miss out on optimizing spend-based rewards like cash back.

Even though two-thirds of consumers redeem their credit card rewards multiple times a year, 16% admitted to letting their rewards expire. Of that 16%, more than four in 10 consumers say they let their rewards expire because they simply forgot to redeem their points.

Demand for Digital

The survey also found that respondents are leaning into digital banking and seeking easier and quicker ways to pay bills, spend money and access support. More than eight of 10 respondents (82%) prefer to pay their bills online or through an app. Digital banking has become so important to consumers that more than half (55%) say they decide which card to get based on the digital experience provided.

Digital wallets are also rising in popularity, particularly among younger consumers, as 72% of survey respondents set up a mobile wallet in 2023, with 82% of mobile wallet users between the ages of 18 and 34 years old. Only 42% of consumers ages 45 years and older are concerned about cyber security and do not use a digital wallet because of this.