Tristin Burdick | June 5, 2023
The ebb and flow of economics can shape consumer behavior, especially regarding crucial decisions they make about spending and saving their hard-earned money. To get a pulse on consumers’ personal finances, we conducted a comprehensive study with our consumer panel. This was our ‘snapshot’ of their current financial situation for the second quarter of 2023, which we will later compare to our second pulse study later this year in quarter three. There were three distinct themes that emerged: Stability and Personal Finances, Caution and Financial Planning, and Economic Pessimism.
Stability in Personal Finances
The first theme revolves around stability and personal finances. The US economy has been speculative for much of 2023, up until the point of writing this article. Two out of the three largest banking foreclosures in US history happened within days apart from each other earlier this year (Silicon Valley Bank on March 10, 2023 and Signature Bank on March 12, 2023).
For consumers, most are doing well financially. The majority of respondents in our study reported feeling ‘financially secure’ and having ‘no difficulty’ in paying their monthly expenses. This suggests that consumers have a healthy control over their finances, balancing income and expenditures effectively.
Diving deeper into the personal financial behaviors of the respondents, we noticed stability in their spending habits. In the past three months, 46% of individuals have kept their spending habits consistent, suggesting a degree of fiscal predictability and a lack of major financial upheavals in their lives. This trend, however, doesn't necessarily mean they're in a comfort zone. The balancing act between income and expenditures still requires careful management, but the results suggest that most respondents have been successful in navigating these financial waters.
When we turn our attention to the respondents' financial outlook, we find that 68% expect their personal finances to remain stable over the next three months. This reinforces the theme of stability and reveals confidence in their personal financial situation.
Yet, the theme of financial stability isn't without its challenges. A proportion of respondents are still wrestling with debt, with some reporting varying degrees of severity. However, what stands out here is that despite this challenge, a majority expressed confidence in their ability to manage their personal finances. This implies not only a sense of responsibility but also a level of financial literacy that enables them to tackle debt and maintain financial stability.
The theme of Stability in Personal Finances highlights a significant proportion of respondents demonstrating a sound and steady approach to their financial management. As we transition from this theme of stability, we start to explore the more proactive measures that individuals are taking to safeguard their financial future, a theme that we've termed 'Caution and Financial Planning'.
Caution and Financial Planning
The second theme underscored in the survey results, Caution and Financial Planning, paints a picture of prudence, foresight, and strategic financial management among respondents. Amidst current economic conditions, our findings suggest many consumers are taking proactive steps to ensure their financial future.
Approximately 59% of respondents noted they have been consciously putting money aside for savings. This statistic is indicative of a cautious approach towards money management, with individuals prioritizing a safety net for unexpected circumstances or future expenses. The importance of savings to these respondents is not just as an emergency fund, but also as a source of financial confidence, offering them a buffer against potential economic disruptions.
The theme of financial planning is further highlighted by the fact that 54% of respondents have reported having a well-defined financial plan. This figure represents a conscious move towards structured financial management, where individuals are not just monitoring their day-to-day expenses but are also mapping their future financial landscape. This planning often involves long-term goals such as retirement, purchasing a home, or investing in education. By having a clear financial plan, these individuals are better equipped to make informed decisions and prepare for potential financial hurdles.
Interestingly, the survey shows that a solid 71% of respondents are willing to cut back on non-essential expenses in times of financial stress. This implies a high degree of financial awareness and flexibility, as well as an ability to prioritize and adjust according to financial needs. It also suggests a certain level of self-discipline in spending habits, which is a vital aspect of successful financial planning.
Additionally, our findings show that 43% of respondents consider investing as part of their financial strategy. This suggests a calculated risk-taking approach, as investing is a balance between potential high returns and risk of losses. It speaks to the foresight of these individuals who are leveraging their current assets for future financial growth.
The theme of Caution and Financial Planning brings to light a segment of respondents who are not only mindful of their present financial situation, but are also active participants in shaping their financial future. While individual actions and strategies show a degree of control, the broader economic landscape presents its own challenges. This brings us to our final theme - 'Economic Pessimism'.
Economic Pessimism
The third theme that emerges from our survey, Economic Pessimism, describes consumers’ outlook on the broader economic landscape. It seems a substantial portion of the respondents harbor concerns about the future of the economy, which in turn affects their financial decisions and expectations.
Specifically, 66% of survey participants expressed a belief that the economy would either remain stagnant or worsen over the next 12 months. This pessimistic outlook indicates a widespread apprehension about potential economic downturns or continued instability, perhaps prompted by factors such as inflation concerns, unemployment rates, market volatility, and geopolitical tensions.
Further supporting this theme, 73% of respondents have indicated they are worried about their job security or income stability in the coming year. This statistic is particularly telling, as it not only reflects the perceived health of the job market but also the individual's confidence in their personal economic circumstances. It suggests that many are bracing for potential financial difficulties and instability in their careers or income sources (also supported by the previous two themes mentioned above).
The data also points out that about 58% of respondents feel that their purchasing power has decreased over the past year. This could be attributed to the rising costs of living, inflation, or stagnating wages. The perception of diminished purchasing power is a significant concern, as it directly impacts the quality of life and contributes to feelings of economic insecurity and uncertainty.
In addition, the survey reveals that 61% of the respondents believe their financial situation will not improve in the upcoming year. This sentiment of financial stagnation or decline further underlines the theme of economic pessimism, indicating an expectation that the challenging economic conditions will continue to affect personal finances adversely.
The theme of Economic Pessimism portrays a significant degree of worry and uncertainty among respondents concerning the economic future. Despite the individual strategies in play, broader economic forces are still a significant concern. Now, let's explore the implications of these themes and what they mean for stakeholders moving forward.
What does all this mean?
Consumer sentiments toward their financial stability, future financial planning, and the broader economic climate carry profound implications for key stakeholders. These stakeholders, including policymakers, financial institutions, and businesses, should carefully interpret these findings to adequately meet the evolving needs of consumers. The themes of Stability and Personal Finances, Caution and Financial Planning, and Economic Pessimism present not only a snapshot of current financial behavior but also indicate potential trends in the upcoming months.
A clear majority of individuals feel financially stable and have managed to maintain their living standards. This sense of stability shows a current trend in responsible financial behavior. Stakeholders must acknowledge and cater to this trend by offering financial services and products that foster financial wellness. For example, institutions could provide tools to encourage continued financial literacy or create products that support responsible credit use, like low-interest loans or credit cards with favorable terms.
Furthermore, a significant number of respondents take a cautious approach to their finances. The fact that they consciously save money, have a defined financial plan, and are willing to cut back on non-essential expenses in times of financial stress indicates a more proactive and cautious approach to managing their finances. This cautious behavior might indicate a propensity towards lower-risk financial products, and a growing demand for financial planning services and advice. Institutions should consider offering services that cater to this conservative approach, such as safe investment options, comprehensive financial planning tools, and educational resources on effective saving strategies.
Lastly, the prevailing sentiment of Economic Pessimism shows consumers are mindful of the broader economic climate, and it heavily influences their financial decisions. This awareness implies that consumers will appreciate transparency from financial institutions and may prefer companies that provide clear, honest communication about economic conditions and how these might impact their financial products and services. Policymakers and institutions may need to focus on rebuilding economic confidence, perhaps through measures that encourage job creation, stabilize inflation, or increase wage growth.
The coming months will likely see a continuation of these trends. If economic pessimism persists, individuals may further tighten their spending, increase their savings, and lean towards more conservative financial strategies. Financial institutions and policymakers that understand these shifts and adapt their strategies accordingly will be better positioned to meet consumers' needs. Recognizing these trends and responding effectively is key to fostering a financial landscape that reflects the realities and expectations of consumers, ultimately promoting a more inclusive and economically secure society.
