Article/Insight

Americans Start to Feel Squeeze of Inflation

Banking and Payments Intelligence Report
July 2022

Americans Start to Feel Squeeze of Inflation

The specter of inflation has loomed over every facet of the economic landscape this year, and virtually all Americans are suffering some level of fatigue from the rising cost of goods and services. But for the first time since February 2020, when J.D. Power began tracking the financial health of American consumers, it seems inflation is finally starting to affect financial wellbeing.

According to J.D. Power data, U.S. banking customer’s overall satisfaction with their financial condition is at its lowest point in 12 months, while stress levels are mounting.  In one year, the proportion of financially healthy[1] customers nationwide has plummeted, and it seems inflation is at the heart of the precipitous drop.

As inflation begins to catch up with Americans, banks are faced with a foreboding trend: Customers are exploring new ways to bridge their financial gaps, and many are either unaware of budgeting and debt assistance problems that banks offer, or they are eschewing their banks altogether in favor of private personal loans and debt management apps.

Feeling the Pain

Even after months of Americans dealing with higher prices everywhere, banking customers were slow to acknowledge that inflation was causing any substantive change in their financial situations. Now, that sentiment is changing.

Bank customers’ overall satisfaction with their current financial condition is at its lowest point in 12 months and the proportion of bank customers classified as financially healthy has fallen 11 percentage points during that same period. Now, nearly two-thirds (64%)of bank customers are classified as financially unhealthy to varying degrees.

graph showing proportions

That drop in overall financial health is largely attributable to an 8-percentage-point increase in the recognition of inflation among consumers.

graph showing inflation increase

Lost Wages Drive a Jump in Personal Loans

As a result, banking customers need a lifeline, and they’re willing to go explore new avenues to get it. Overall, 19% of customers applied for personal loans in the past year, with Americans under 40 years old more than twice as likely than older customers to have applied for a loan.

chart of personal loan applications

Customers whose financial situations are classified as overextended were the most common applicants (27%). By contrast, 15% of personal loan applicants were customers with healthy financial situations.  Reasons for theses loan applications varied. Most often, customers said they applied for the loan to help pay off existing debt (39%). However, 34% said they applied for a personal loan to supplement their income due to lost wages. That answer was most common for customers under the age of 40 (39%).

The Awareness Gap

The financial health of their customers is discouraging enough, but banks are also being forced to wrestle with this sobering reality: More and more, Americans are looking elsewhere for their financial assistance. And it’s often because they’re completely unaware of assistance programs that banks offer.

Overall, 66% of banking customers said they were unaware of any debt management assistance offered by their bank. That number swells to 78% of customers over the age of 40, 76% of customers whose financial health is stressed and 72% whose situations are vulnerable.

Bank offerings of debt services in a chart

But that’s not where the problem ends for banks. Of the customers who are getting debt and budgeting assistance, 31% are relying on personal finance apps like Stash, Mint and others, instead of their banks. 

Personal finance apps are used for debt tracking

While budgeting and debt assistance that banks do offer may not have all the answers, it is there. Unfortunately, awareness among customers is woefully low, and that could create challenges in the future of large American banking institutions.

As we reported in the J.D. Power 2022 Consumer Lending Satisfaction Study, personal loans tend to act as a gateway to other financial products. Overall customer loyalty with personal loan products is high, with 61% of loan customers indicating that they are likely to use their lender again. This could create expanded opportunities for lenders that historically only offered loans as these companies expand their product offerings with checking, savings, credit card and investment options.

If banks are going to play a key role in helping their customers confront the rising burden of inflation, and, as a result, garner the kind of goodwill that builds customer retention and advocacy, they’ll need to lead targeted, personalized and proactive efforts to help customers find the right products and services. Without doing so, they run the risk of leaving their customers adrift at a very turbulent time, which could leave banks vulnerable in inflation’s wake.

Find out More

This Banking and Payments Intelligence Report is based on responses from 4,000 retail bank customers nationwide and was fielded in May 2022. It was authored by Jennifer White, senior consultant of banking and payments intelligence at J.D. Power. Please contact us at the numbers below to connect with Ms. White or to learn more about the underlying research.

Media Contacts

Brian Jaklitsch; East Coast; 631-584-2200; [email protected]

Geno Effler, J.D. Power; West Coast; 714-621-6224; [email protected]

 

[1] J.D. Power measures the financial health of any consumer as a metric combining their spending/savings ratio, creditworthiness, and safety net items like insurance coverage. Consumers are placed on a continuum from healthy to vulnerable.