The Pulse

State Of The Household Balance

COVID-weary Americans ready to spend, but many are also concerned about job security and income

New Freedom Financial Network Survey finds nearly a third of consumers say they would have to put large purchases entirely on credit cards, even before latest interest rate hikes. View the full study here.

SAN MATEO, Calif., June 21, 2022 /PRNewswire/ — Freedom Financial Network (FFN), a leading digital personal finance company, released the results of its new study, State of the Household Balance Sheet, which examined consumers’ financial health two-plus years into the COVID-19 pandemic. The study takes a close look at the large purchases that they had intended to make this year, as well as how they plan to pay for them.

According to the study, most consumers would have to use a credit card (32%) if faced with a $1,000 unexpected expense. A considerable portion of people would also use cash from an emergency savings account (28%) or borrow money from friends and family (18%). Large expenditures are often unexpected, and many people don’t have options besides taking on unwanted and increasingly expensive credit card debt.

Lack of Savings at Odds with Pent-Up Desire to Spend

That inability to cover a large, unexpected expense is at odds with pent up demand Americans are feeling to return to their pre-pandemic lives and purchasing habits. According to the survey, consumers’ most common large, planned expenditures within the next 12 months include a vacation (30%), a vehicle (27%) and furniture (23%) — all expenses that perhaps felt less-essential or were inaccessible over the last two years.

In addition, the survey showed that after spending so much time indoors during the pandemic, homeowners are itching to upgrade their living situations. In fact, 56% of homeowners are planning to make a large expenditure that is home-related in the next year — ranging from purchasing a house, making home renovations, furniture, large home appliances, or smart home systems and other home automations.

“Many consumers are making up for lost time by booking much-needed vacations put off due to travel restrictions, while others are returning to the office again, leading to more spending on commuting expenses and dining out,” said Andrew Housser, co-founder and co-CEO of Freedom Financial Network. “That’s totally understandable but rising gas prices, rising interest rates and inflation at a 40-year high are starting to strain consumers’ wallets, posing potential danger to their long-term financial health if they are not careful with their spending and payment methods.”

Payment Methods and Debt Levels

To pay for these planned large expenditures, as well as other unexpected expenditures, consumers are turning to a variety of payment methods. The survey found that 46% of Americans typically pay for large purchases all at once in cash or with their checking/savings accounts, helping them to avoid costly interest expenses they may incur with credit cards or personal loans. However, about a third of consumers (32%) say they typically put large purchases entirely on credit cards.

In addition, 33% of consumers said their household’s total unsecured debt increased since March 2020 — when the World Health Organization declared COVID-19 a pandemic — compared to 19% who said their unsecured debt decreased. Looking ahead, 29% expect their unsecured debt to increase over the next 12 months, while 22% who expect it to decrease. Meanwhile, 28% of respondents said their total household income increased since March 2020, compared to 30% who said it decreased. But 34% of consumers expect their household income to increase over the next year, compared to just 20% who think their household income will go down.

“Naturally, consumers are excited to regain a sense of normalcy again, but in this time of uncertainty and potential economic stress, it’s critical that consumers not extend themselves beyond their financial means,” said Housser. “The double whammy of pent-up consumer demand coupled with rising rates and inflation are putting consumers in a precarious position. It can be tempting to use credit to pay for items we have been holding off on for the past two years — especially when the availability of credit is at or near all-time highs. But right now, with the economy on shaking ground and inflation ripping, it is more important than ever to live within our means and only purchase things that we can afford without credit.”

Digital Payment Methods Gaining Traction

Many consumers are making up for lost time by booking much-needed vacations put off due to travel restrictions, while others are returning to the office again, leading to more spending on commuting expenses and dining out...

Digital payment methods, including payment apps and buy now, pay later (BNPL) products have also risen in popularity in recent years and have a dedicated user base. In fact, 42% of Americans that typically pay for large purchases using buy now, pay later or lease-to-own financing have used BNPL services such as Affirm and Klarna in the past 3 months. However, these BNPL customers are even more likely to have used digital payment apps like PayPal and Zelle (57%) and mobile banking apps (47%) over this same period of time.

The top three digital financial products consumers have used within the last three months are payment apps such as CashApp and PayPal (49%), mobile banking apps (43%) and delivery services like UberEats and DoorDash (25%), which have been a mainstay during the pandemic. Consumers expect to continue using payment apps (49%), mobile banking apps (42%) and delivery services (24%) within the next 3 months — more so than any other digital financial products or services.

Financial Security & Wellness Outlook Impacted by Rising Inflation

As consumers look ahead, 46% of respondents expect to spend more on household necessities like bills and groceries in the next 12 months. But despite the challenging economic circumstances, Americans’ perception of their financial security and future financial wellness is generally optimistic. Only about 1 in 4 consumers believe their household’s income, financial and job security, and physical and mental health will decrease in the next year. However, 29% of consumers expect their household’s total unsecured debt to increase in the next year, compared to 22% who expect their unsecured debt to decrease.

COVID Assistance & Outcomes

Government assistance throughout the COVID-19 pandemic also varied by individual but had a positive impact on a number of different groups. For example, renters were statistically more likely to rate their financial situation as bad at the beginning of the pandemic than homeowners. And nearly half (48%) shared that the rental housing assistance they received has provided them short- or long-term financial relief.

Student loan relief, which paused repayment of federal student loans and froze interest accumulation until August 31, 2022, provided relief to consumers across multiple generations. While conversations about student loans typically center on Millennials, Gen Z stood out as the generation that received the most relief from student loan forbearance throughout the pandemic (52% of Gen Z compared to 37% of Millennials).

 

 

 

 

Methodology
Allison+Partners Research + Insights surveyed 1,002 individuals age 18 and older in the US. The survey was fielded using the Qualtrics Insight Platform and panel was sourced from Lucid. Fielding took place in Spring 2022.
About Freedom Financial Network
Freedom Financial Network is a leading digital personal finance company. We do what traditional banks don’t: Put people first. Our solutions help everyday people get on, and stay on, the path to a brighter financial future, with innovative technology and personalized support. By leveraging proprietary data and analytics, our solutions are tailored for each step of a consumer’s financial journey and include personal loans (FreedomPlus), home equity loans (Lendage), help with debt (Freedom Debt Relief), and even financial tools and education (Bills.com). Freedom Financial Network has more than 2,300 dedicated employees across California, Arizona and Texas and is recognized as a Best Place to Work.
For information on career opportunities at Freedom Financial Network, visit: https://jobs.freedomfinancialnetwork.com/

 

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