With new stimulus checks hitting Americans’ bank accounts as early as this weekend, this week, we’ve rounded up the top three things collections teams should know.
1. Americans will continue to save and pay down their debt.
In their analysis of the March 2020 stimulus, the National Bureau of Economic Research found that nearly 70% of the money distributed was spent paying down debt or applied toward savings. New surveys expect this trend to continue and grow with the new round of checks.
Case in point: a new Bloomberg survey shows that compared with the first round of stimulus checks, the payments from Biden’s $1.9 trillion aid bill are much more likely to be saved rather than spent.
2. Averages obscure segment-specific behavior
In the study described above, the NBER finds a number of segment-specific trends that are likely to continue with this round of stimulus checks. They find:
- Older consumers are more likely to apply their stimulus toward paying down debt
- Younger and more educated households are less likely to pay off debt and more likely to put their money in savings
- Larger households are more likely to spend their stimulus money
- Contrary to common wisdom, cash-constrained households are no more likely to spend their stimulus money, and are instead paying down debt at the same rate as non-cash constrained households.
The NBER data reminds us: while much is gleaned from overall statistics, behavior across consumer segments can vary greatly.
Look no further than student loans, which are overwhelmingly held by younger people. In 2020, the growth of student loan debt increased to 9%, compared to the 6% growth we had seen in the previous five years. The result? Student loan debtors have the highest averages in recent history, which may play into their ability to repay on all obligations across the next few years.
3. Pandemic-time conservatism is expected to end, potentially driving up delinquencies
Why are consumers saving money and paying off their debts? Unlike in other economic downturns, pandemic lockdowns prevent us from spending money. With the ongoing opening of restaurants, stores, and an increased ability to take vacations, this may change.
In fact, while the pandemic saw low delinquencies, the pendulum is likely to swing the other way during 2021. Several sources are predicting a surge in consumer spending. A Deloitte study finds that by 2022, consumer spending on travel, food service and entertainment will outpace spending on goods, the dominant expense category during the pandemic. The National Retail Federation estimates retail sales will exceed $4.33 trillion in 2021, setting a historical record.
Post-pandemic freedom could lead consumers to over-extend themselves, causing in turn a surge in delinquencies.
It continues to be a great time to invest in your collections operations with innovative products, like our solution BackOnTrack. In addition to providing an empathetic treatment for your early stage delinquencies, BOT can help you glean segment-specific risk from data collected directly from your consumers. For more information, feel free to contact us.
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