TROY, Mich.–Americans are attempting to pay down debt even as “inflation recognition” continues, according to a new study from J.D. Power that suggests financial institutions have gotten more proactive in providing budgeting assistance.
With the stock market up and inflation down, it would appear Americans “have a chance to breathe, right?” asked J.D. Power, before answering, “Not quite.”
According to the latest J.D. Power data, even as economic indicators improve, customer response is not showing a slowdown in the effect of higher prices. Nearly two-thirds (64%) of consumers postponed a bigger purchase in the past month due to lingering inflation, compared with 48% in October 2021, and the rate of customers who said the cost of goods is increasing faster than their income reached a six-month high, J.D. Power reported.
“Still, customers are trying to course correct from the past 18 months of financial volatility. Bank customers are trying to use some newly found wiggle room at the checkout counter to help pay down any debt they accrued to keep their finances afloat,” J.D. Power stated. “Unfortunately, most are doing it on their own, without the help of their financial institutions or card issuers.”
Inflation Fatigue
J.D. Power reported there has been no significant change in overall financial health, with nearly early one-third (31%) of respondents saying they are financially healthy, while 44% saying they are “vulnerable.”
“Despite inflation continuing to ease, the overall level of inflation recognition among customers rose sharply to 70%—the highest mark in the past six months,” J.D. Power said. “There was an increase in all customer segments when asked if the price of goods is increasing faster than their income and, surprisingly, the biggest increase was among health customers (8 percentage points).”
J.D. Power added that with the current inflation rate hovering close to 3% (down from more than 8% a year ago), “these numbers may be a cumulative effect, suggesting fatigue among bank customers.
Budgeting Assistance
To help customers through this malaise, J.D. Power said banks have begun to be more proactive in offering budgeting assistance, noting that 46% of banking customers say their bank has proactively reached out to them about budgeting assistance.
That number increased to 65% among customers under age 40, and 71% of customers that are classified as financially overextended, the company said.
“The most common occurrences of banks offering budgeting assistance were ads on their website or mobile app (19%); a mailer about budgeting assistance (16%); directed customers to where budgeting tools are located on their website or mobile app (16%); and offered incentive to customers to encourage use of their budgeting tools (12%),” according to J.D. Power.
Paying Down Debt
J.D. Power noted that some customers have managed the 2022 inflation explosion by taking on more debt, and many are now trying to take steps to dig out of these deficits.
Three-fourths (75%) of customers indicate they have paid down debt in the past 12 months, while 33% are not aware of any credit card services to aid in this quest, J.D. Power reported.
When asked how customers are paying down debt:
- 30% said they have stopped adding new debt (a strategy likely aided by easing inflation)
- 26% said they have cut expenses and used the extra money for repayment
- 18% said they have found a new source of income
- 19% said they are only paying their minimum due.
‘Noteworthy’ Findings
“What’s noteworthy is that many customers are pursuing this debt repayment without any professional advice,” J.D. Power stated. “Less than 10% are getting professional advice about their repayment.”
When asked what specific services card issuers offer to help in debt repayment, J.D. Power reported 43% said they were not aware of any service to manage debt. The rate was highest among customers over age 40 (41%) and customers that are stressed (39%), the company added.
An Opportunity
“This seems like a lost opportunity for banks and card issuers to not only improve relationships with their customers but forge a deeper level of trust, particularly among younger customers and those who are currently struggling financially,” J.D. Power advised. “That’s because, when prompts do occur and customers act, the outcomes are largely positive.
“While the macro-economic landscape is improving, the ripple effects of the past 18 months will continue to show up in customer sentiment,” J.D. Power continued. “Some bank customers have gotten creative to bridge the gap, and it’s clear that many are now making strides to get back on solid ground.As they do, both banks and card issuers could earn plenty of goodwill by recognizing these goals and being even more proactive about helping customers achieve them.
“Customer outreach can build trust in both financial assistance tools and a bank or issuer’s overall brand. That trust will likely result in loyalty and increased satisfaction over time. As the storm eases, customers will remember who helped them rebuild. Now is the time to forge that bond,” J.D. Power said.
For the full study, go here.
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