Consumers have had a rough time in the past few years. From the Covid shutdowns and job losses to the current inflation and skyrocketing household expenses,
While banks can’t control inflation, wages or food and gas prices, they can prove to be a valuable partner in trying times by offering financial wellness content and advice to help consumers. Several surveys indicate consumers want financial advice from their banks and are willing to switch to another financial institution for better money management features.
“The past few years have been tough on consumers in general, and many of the financial pressures they face may not subside all that quickly,” says Jennifer White, senior director for banking and payments intelligence at J.D. Power. “If banks don’t begin making progress in making advice content resonate, they could be facing significant attrition risk.”
Consumers Worried By Inflation
Inflation hit a 40-year high of 8.6% in May 2022 and then jumped to a new record — 9.1% — the following month, further diminishing the real value of consumers’ paychecks and increasing the price of everything from gas to groceries. Nearly 60% of Americans are now living paycheck to paycheck, up from 54% in May 2021, according to data from Lending Club.
Even given the rapid runup of prices in 2022, it’s still shocking that 93% of consumers say they are concerned about the impact of inflation and rising prices in everyday life, according to a survey by Personetics. Many said they were cutting spending on non-essential items, reducing home energy usage, eliminating restaurant meals, and canceling large purchases.
It doesn’t help that consumers have to turn to their credit cards just as interest rates are rising. Federal Reserve data revealed that credit card balances reached $841 billion in the first three months of 2022. Because credit card interest rates directly rise in correlation with the Fed funds rate, this can lead consumers into a financial freefall.
“The ongoing effects of once-in-a-generation inflation are eating into the discretionary spending of Americans across all incomes, and they are increasingly relying on credit products to cover the cashflow gaps,” says Anuj Nayar, Financial Health Officer at Lending Club.
An Opportunity for Banks and Credit Unions to Help
Financial institutions need to look after their own balance sheets in a time like now, of course, but they can also help themselves and gain long-term loyalty by helping consumers. More than half (51%) of the consumer respondents in the Personetics survey said they wanted more help from their bank in managing their money, yet just a quarter said they had heard from their bank on the matter in the past three months.
Of those who heard from their bank, two-thirds said they were unhappy with the general advice. Additionally, 58% said they would consider switching to a financial institution that offers better money management features.
“Helping consumers is not only the right thing to do but will also help increase customer loyalty and customer lifetime value.”
— David Sosna, Personetics
“People are crying out for their bank to help them through the greatest financial shock of a generation as inflation and household bills hit record levels,” said David Sosna, CEO of Personetics in a statement. He noted that banks are well suited to be a part of the solution and shouldn’t sit on the sidelines.
By harnessing customers’ financial transaction data, financial institutions can offer personalized guidance and advice at scale to help consumers make better money decisions and build financial wellness and resilience.
Here are five ways banks and credit unions can help customers cope with inflation:
1. Financial Wellness and Education Content
J.D. Power’s 2022 U.S. Retail Banking Advice Satisfaction Study found nearly 60% of retail bank customers expect their financial institutions to help them improve their financial health. Yet, few banks are delivering on that expectation, and satisfaction with national and regional banks is now 30 points lower on a 1,000-point scale than it was a year ago.
“The data makes it crystal clear: Retail bank customers want guidance, but many aren’t receiving it,” said Jennifer White. “The tools banks have at their disposal aren’t always being used or, when they are, they are not used effectively.”
Simple content like how to make a budget, save money on groceries, or essential moves to make with your money during high inflation can go a long way.
2. Budgeting and Money Management Tools
As consumers struggle with rising prices, budgeting is becoming more critical than ever. Priorities are now shifting from long-term concerns like retirement and college savings to short-term necessities like how to deal with a cash shortfall. “The banks that figure out how to blend those together are the ones that are earning people’s trust the quickest,” White told The Financial Brand in an earlier article.
Many banks offer budgeting tools, but adoption is typically low, and consumers aren’t always aware of them. To be effective, these tools need to be publicized, have visual appeal, and be easy to use.
3. Automated Savings
Due to stimulus funds and reduced spending during the shutdown, consumers built up their savings accounts during the pandemic. However, two-thirds of Americans are now raiding their savings as prices for goods and services rise, according to a recent Forbes Advisor survey.
As they strive to rebuild their savings accounts, banks can help by offering automatic savings plans or apps. For example, Varo Bank’s Spare Your Change plan enables consumers to funnel spare change from all transactions to another savings account. Another version, which automatically transfers excess funds from checking to savings, is offered by the money management app Digit and also by Plinqit, a fintech that works with community financial institutions.
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4. Reduce Card Rates or Offer Free-Balance Transfers
As interest rates rise and consumers seek ways to cut back on expenses, many will look to their credit card balances. The average rate on a new credit card is now 19.11%, according to WalletHub. Yet many issuers, including Citi and American Express, have cut back on their 0% balance transfer offers in the past couple of years. A Citi spokesperson told CNBC it has made “certain adjustments to responsibly manage risk for our customers and the company.”
This could present an opportunity for other banks and credit unions to help their existing customers and attract new ones. Navy Credit Union introduced five new credit card offers, including a 0% balance transfer. Alliant Credit Union and PenFed Credit Union are also offering generous 0% transfers.
Financial institutions may also consider working with consumers to show them ways to lower their credit card rates or better manage their card use.
5. Personalized Solutions and Advice
Many consumers may not realize they’re leaving money on the table every month. A Bankrate.com survey found that 40% of consumers don’t know the interest rate they’re paying on their credit cards, while 27% don’t know the interest rate on their mortgage.
Banks and credit unions that take a customer-centric strategy may find they can use data to offer personalized solutions to save customers money. For example, they may discover a customer has an opportunity to easily consolidate debt and save on their monthly payments. Or, they may find a customer is carrying a high rate on a credit card or auto loan and may qualify for something better.