One of the biggest economic surprises of the past few years has been the continued strength in consumer spending — particularly in discretionary categories such as travel.
Remember when 2022 was supposed to be the year of “revenge travel” as people unleashed all of the pent-up demand which stacked up during the pandemic? That prediction turned out to be true, of course, as the Transportation Security Administration (TSA) processed an astounding 30 percent more passengers in 2022 than it did in 2021.
The surprise wasn’t that 2022 was busy. It was that 2023 was busier, and that 2024 is shaping up to be the busiest year yet. The TSA’s 2023 figures marked a new record: 13 percent more passengers than in 2022. And as of July 7, this year is 6 percent ahead of last year’s record pace. In fact, the busiest day in TSA history was July 7, 2024 (just over 3 million screenings), eclipsing a record set just last month.
How are people paying for all of this travel?
Many are saying “you only live once,” throwing caution to the wind and taking on debt as a result. About four in 10 U.S. adults (38 percent) are willing to go into debt this year for discretionary purchases, according to a Bankrate survey on discretionary spending. Travel (27 percent) led the way, followed by dining out (14 percent) and live entertainment tickets (13 percent).
Consumer spending has remained solid, although we’ve begun to see signs of a pullback. This has been most evident in physical goods categories, such as furniture (down 7 percent year-over-year, according to the Census Bureau), home improvement stores (down 4 percent) and sporting goods and other hobby shops (down 3 percent).
Demand for tangible goods, such as home improvements, surged in 2020 and 2021 due to pandemic factors and has been relatively weak ever since. Services spending, including on travel, has been the exact opposite. Americans have been splurging on experiences for the past few years.
Interestingly, bar and restaurant sales have recently started to slow, whereas travel demand has remained strong. The Census Bureau’s latest retail sales report found that bar and restaurant sales dipped 0.4 percent from April to May and have stalled out over the past six months or so following about three years of explosive growth.
Travel demand, as evidenced by the TSA passenger numbers, has actually intensified a bit as 2024 has progressed. From May 1 through July 7, year-over-year passenger screenings were up 6.7 percent. From January 1 through April 30, they increased 6.2 percent.
This is despite the fact that Americans are trimming back on other types of spending. They’re also saving less (the personal saving rate is below historical norms) and taking on more debt (credit card balances are up 45 percent since the first quarter of 2021).
What to do if you haven’t booked yet
I certainly don’t want to tell people they can’t have any fun. Even though I worry about taking on pricey credit card debt (the average credit card rate is a near-record 20.71 percent) for discretionary purchases such as travel, there are plenty of ways to have fun on a budget.
One of my favorites is to use your credit card rewards, frequent flyer miles and hotel points. These have real value but can be “out of sight, out of mind.” A 2023 survey conducted by our sister site CreditCards.com revealed that about a quarter of rewards credit cardholders didn’t redeem any rewards throughout the preceding year. You might be sitting on a lot more value than you realize.
Unused gift cards present a similar opportunity, according to a Bankrate survey on the topic. Almost half of Americans have them, and the average value is nearly $200 per person. Don’t forget about travel vouchers, either. These often expire within a year — sooner than gift cards, which can’t expire for at least five years — so make sure to use them before you lose them.
Flexibility is key as well. In other words, it pays to zig when others zag. Traveling to a destination during its offseason or shoulder season is often a lot cheaper than joining the hordes of peak-season travelers. Driving instead of flying, traveling midweek instead of on the weekend or taking the first or last flight of the day can cut your travel costs, too. I’m also a big fan of renting accommodations with a kitchen so you can prepare at least some of your meals rather than always relying on expensive restaurant food.
How to fit travel into your budget
You don’t need to spend lavishly to have a good time. For some people, it makes sense to scale back and travel closer to home. The ultimate example is to plan a “staycation.” About one in eight Americans are planning one of those home-based vacations this summer, according to Bankrate’s 2024 Summer Vacation Survey. It can be fun to break the daily routine and play tourist in your local area.
Or maybe journeying further from home is in the budget this summer and beyond. While the cumulative toll of inflation has been significant — a collection of common household expenses costs about 20 percent more now than it did in early 2022 — travel prices have come down noticeably over the past year.
Rental car costs are down 9 percent, airline fares are down 6 percent and hotel prices have declined 2 percent over the past year, according to the May 2024 Consumer Price Index. Unlike some other categories, travel prices are basically back to where they were in 2019.
The bottom line
When it comes to summer travel spending, it’s possible to find a happy medium. Even though many people are stressed by inflation, it’s important to carve out some fun money. Start by setting some dollars aside from every paycheck to form a dedicated entertainment fund. Take advantage of rewards points and miles that you’ve accumulated and be creative and flexible with your travel planning.
A good budget prioritizes spending that’s important to you. It doesn’t eliminate all opportunities for fun. Instead, it’s about tradeoffs and putting that priority list together. If travel is on your wish list, you can certainly make that happen.
Have a question about credit cards? E-mail me at [email protected] and I’d be happy to help.
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