TROY, Mich.–Inflation isn’t fading, but new data from J.D. Power suggests Americans are getting a better handle on how to manage their finances in the face of challenging economic conditions.
According to the company’s analysis, the share of American banking customers now classified as “financially healthy” increased four percentage points, during August, the largest increase in nearly a year.
“What’s more, the number of customers that said the cost of goods increased faster than their income fell for the first time since we began tracking the metric in March 2022,” J.D. Power said. “While the improvement is modest—and a significant majority of American consumers are still experiencing financial difficulties—supporting data suggest that many Americans are starting to change their spending habits to adapt to rising prices.”
Financial Health Improves Slightly
Although it is “still too early to call it a rebound,” J.D. Power said some key indicators of financial health are starting to show month-to-month improvement. Notably, 34% of U.S. bank customers are now classified as financially healthy, up four percentage points from July.
Meanwhile, the percentage of banking customers who said the price of goods is increasing faster than their income, decreased one percentage point to 71% in August.
Spending, Budgeting, and Saving Strategies Evolve
Americans also seem to be adjusting their spending to mitigate the stress caused by inflation. Currently, 86% of consumers say they are taking action to manage inflation in their lives today with steps such as increased budgeting, buying fewer items to stay on budget and increasing savings to save for future services. For example, in October 2021, 12% of bank customers told J.D. Power that they do not have a budget. In August, that number fell to just 8%, the company reported.
“The biggest changes in consumer spending behaviors are focused on dining options and discretionary spending on items such as clothing,” J.D. Power said. “While Americans are reining in spending, it seems that they are backing off some of the emergency measures they took over the summer. The number of Americans that reduced their savings to pay for immediate expenses decreased month over month, as did the percentage of those that experienced increased need for credit to pay for immediate needs.”
Financial Institutions to the Rescue?
While banking customers try to navigate this financial landscape, banks are still slow to offer solutions that are making a meaningful difference, according to J.D. Power.
The company said it found one-fourth (25%) of customers wish they received information from their bank about strategies and tools to manage inflation, save in a recession or pay down debt in a recession.
“When asked what banks could do to make products compelling enough to use, Americans were quick to mention rewards, such as cash back, higher-yield rates and discounted fees (34%),” J.D. Power said. “Also, 13% said they would like to be emailed a link explaining benefits of such a tool, and 8% want to be walked through their options at a local branch.”
Guiding to the Light
While the overall outlook on American financial health is still far from optimistic, J.D. Power said the “behavioral changes we are seeing in the data suggest many Americans are starting to adapt to the current inflationary environment.
“For as long as that challenging economic environment persists, banks have an opportunity to make meaningful inroads in their relationships with their customers,” the company’s analysis continued. “Now more than ever, customers are looking to their financial institutions for guidance, and are receptive to programs banks have long been after customers to adopt. Handled properly, the current economic downturn could present an opportunity for banks to earn goodwill and advocacy by helping customers address their pain points.”
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