COVID-19 has been a forecaster’s nightmare. One of the basic tools of any kind of predicting is historical data. But for financial institutions, there hasn’t really been anything quite like COVID-19 and the accompanying human and economic upheaval.
Other recent pandemics and periods of credit crisis don’t match up neatly with what we are going through now, because the causes are completely different.
“There’s a lot of wait and see right now,” says Sofia Kluch, Director of Data Science at Gallup. “Everyone wants to forecast what the long-term impacts of coronavirus will be, taking history into account. But we don’t have the history in an event like this.” While Gallup has developed tools to provide some indicators, Kluch notes that there are limitations.
“Ironically — and as horrific as this sounds — once Gallup and financial institutions have a year of COVID behavior data under our belts, we’ll have a much better idea of what can be predicted and move forward,” says Kluch in an interview with The Financial Brand.
Until then, financial marketers and data scientists are piecing together whatever they can to get a handle on consumer behavior, because traditional metrics aren’t working as well as they might have in other circumstances. With the expectation of more furloughs, and hence more economic damage, understanding what’s going on and what will be going on is critical.
One significant adjustment many marketers are making now is to look beyond the traditional demographic splits that were used pre-COVID. It’s not that breaking people up into generational groupings isn’t important, it’s just that in the COVID environment age itself may be trumped by other factors.
Pandemic Economy Hits Consumers in Multiple Ways
Gallup’s own work in this area has produced its “Walking Around With Money” framework of evaluating COVID-era consumer social and financial behavior. Kluch discussed this evolving tool as well as how financial institution marketers need to adapt in order to work in this environment. “Walking around” refers to each consumer’s degree of willingness to be out in public spaces. “With money” refers to both their ability and their propensity to spend.
“In looking at what has been happening in our country, since COVID-19 started, we realized that many people haven’t been financially impacted,” says Kluch. “They still have their jobs and they still have their salaries. But they are not acting and engaging in commerce in the same way.”
Elaborating, Kluch says these people are shopping, perhaps ordering groceries online and browsing their Amazon shopping carts. “But they aren’t going out and strolling Costco on the weekend and putting a bunch of things in their carts that they don’t need,” says Kluch. “They’re not going to Target for a toothbrush and walking out having spent $100.”
This reflects not only a caution in spending unnecessarily, but a shift in recreationally spending. By that Kluch means casual spending at malls, outdoor fairs and downtown shopping districts.
This observation got Gallup data scientists thinking. “The economic impacts aren’t only being experienced because of loss of jobs or loss of wages, but also because of the behavioral element of how people are reacting to a threat to their physical health,” says Kluch. “The idea of life just changing and people settling into a new routine is definitely there. There is a variety of reasons why people might be acting differently.”
Six Groupings Specifically Based on COVID Patterns
So Gallup, tapping both its usual panels and a special sample, set out to determine how different groups were thinking and acting. Questions included how worried they were about getting COVID-19, how much they had changed their habits because of the disease, how much they were socially distancing (or not). An overlay on this is the 18% of the U.S. population that Kluch says are not high risk themselves but live with someone who does fit the high-risk categories.
This is the six-segment scheme Gallup devised, based on analysis of the data gathered. The percentages appearing with each segment below reflect how large each group was at the time Gallup published a blog on the scheme in August 2020.
1. Middle Ground. (24%) “These Americans are sitting on the fence,” the blog observes. While somewhat concerned, they aren’t overly cautious about coronavirus. Financially they are not in great shape, but not currently in trouble.
2. Cautious and Able. (24%) Their concerns about COVID have altered their behavior and they take health precautions. They spend less, but they could still afford to spend the way they did pre-COVID.
3. Cautious Possibilities. (19%) Like cautious consumers in #2, this group is inclined to self-isolate. They are less financially able, but not actually suffering economically.
4. Ready and Able. (14%) “These Americans are ready to go,” says Gallup. “They express fewer COVID-19 concerns and are making few if any adjustments to their routine to avoid potential exposure. They are also in a strong economic position, making them the most likely to be walking around with money today.”
5. Cautious, Not Able. (10%) These people have concerns and have adjusted their lives accordingly and are also hurting financially.
6. Ready, Not Able. (9%) While ready to go out, they are not ready to spend. “They’re left feeling ready to return to life as normal, but as consumers, they’re economically unable.”
“We expect shifts between the categories over time,” says Kluch. “Indeed, we have seen that already.” In some parts of the country, she says, the Ready and Able group already represents 30% or so of the area sample.
However, in areas with fresh outbreaks of COVID the researchers have also found that consumers revert back to more restricted categories. And any upcoming economic crunches — retailers and airlines have been announcing huge layoffs, for example — could impact the financial side of the classifications.
Looking at Consumers Through Fresh Lenses
Is this six-part setup for classifying consumers going to be a temporary tool, or could it become a standard in the “new normal”? Americans have already grown used to many things that would have been unfathomable a decade ago and new ways of grouping consumers have been suggested by others during the pandemic.
“I think these segments will hold up as long as COVID is relevant,” says Kluch. “When you think about financial services, and financial institution marketing, and about consumers more broadly, there’s always going to be other factors that are influencing behavior. COVID is an unprecedented one. That’s grown to be a cliché but we haven’t seen something like this that so broadly impacts the way that people are spending money and interacting in their local communities.”
Kluch thinks the effort marketers must make now to understand fresh segments among consumers will pay off in the future. Frameworks like Gallup’s would lend themselves to other major social and economic events, she suggests.
“COVID will be a foundational case study for the next potential big thing that happens to our country,” she says. “This will be a strong baseline.”
In the meantime, the practical application of Gallup’s framework will be seen as consumer behavior impacts banks and credit unions. Right now many institutions have more deposits coming in than there is demand for fresh credit.
“People’s likelihood to save or spend is going to be critically impacted,” says Kluch. In many areas the categories that are unwilling to spend will hold sway. In others hit by layoffs and more, the “not able” group may be among those who will wind up defaulting.
Beyond saving and spending, Kluch says categorizing consumers in this way will help banks and credit unions predict how permanently consumers have shifted to digital channels.
Generation Defining for Gen Z, But for Gen X Maybe ‘Re-Defining’
Many of these categories are quite independent of generational labels. But Kluch believes there is something to be said for the claim that coronavirus will be a “generation-defining” event for Gen Z. Those who are in school are experiencing education and its associated social life as no other generation has.
“That distinction will always set them apart,” she suggests. Perhaps some positives will come out of that fresh experience, she adds.
“You’re going to see different cultural shifts as people come out of the COVID-19 period,” says Kluch. “Think of the huge rise in patriotism after 9/11.”
One generation that may wind up having an especially strong coronavirus effect is the one that often gets lost in the generational shuffle — Generation X.
Amid COVID pressures, Gen X is “the sandwich generation,” says Kluch and that status is something that financial marketers need to be aware of because they may find business opportunities in helping them further on.
Many Gen Xers have kids in high school or college right now and their parents are among the groups that are considered at heightened risk for COVID. This often-forgotten generation, it turns out, has a heightened responsibility for others. Financial institutions need to recognize that Gen X may wind up contributing to financial decisions for three generations.